Aluminum prices just soared to a thirteen year high, primarily due to a burgeoning energy crisis gripping the world, worrying analysts that an ongoing supply crunch could worsen. The energy intensive metal has seen its production curtailed recently as many countries continue to prioritize clean energy initiatives. Supply constraints are likely to affect a wide range of industries, including semiconductor manufacturers and homebuilders.
Without a quick fix for the global energy crisis, aluminum supply is forecast to sink into an even deeper deficit after decades of oversupply, potentially leading to higher prices over throughout the next few months.
Related ETF & Stocks: iPath Series B Bloomberg Aluminum Subindex Total Return ETN (JJU), Alcoa Corporation (AA), Century Aluminum Company (CENX), Aluminum Corporation of China Limited (ACH)
Aluminum Costs Surge Amid Global Power Constraints
Aluminum, an energy-intensive metal found in everything from smartphones, airplane parts and window frames, has been in high demand as the global energy crisis shocks markets. Robust demand and dwindling supply have caused the price to surge to a thirteen-year high, with potential for more upside ahead.
MRP has recently highlighted how the energy crisis has driven natural gas prices to record highs, sparking renewed interest in coal as an energy source. Similarly, aluminum production cutbacks have made the metal the latest commodity to experience skyrocketing prices, as costs have jumped roughly 48% year to date.
Aluminum has become a surprise beneficiary of the energy shortages currently ripping across both Europe and Asia. Industry analysts jokingly call aluminum “solid electricity” due to the fact that one ton of the metal takes 14 megawatt hours of power to produce, enough energy to power a home in the UK for nearly three years, per Bloomberg.
One of China’s first priorities in an effort to curb industrial energy usage was setting a hard cap on future aluminum capacity, something that set the stage for supply deficits even before the current energy crunch. AgMetalMiner writes that 2.33 million tons of smelter capacity have already been taken offline due to Beijing’s decarbonization goals, and that new production is not expected to come online until late 2022, at the earliest.
Aluminum prices recently broke the $3,000 per ton threshold on the London Metal Exchange, the highest mark since July 2008. The commodity’s run up typically causes producers to bring more supply online to balance markets, yet that has been far from the case. Bloomberg reports that production in China has stalled due to seasonal power constraints, and with the European energy crisis set to drive power prices higher this winter, aluminum smelters are very unlikely to restart operations.
In a worst-case scenario, industrial power blackouts take hold in Europe and take aluminum production completely offline. According to Reuters, Dutch aluminum maker Aldel has already halted production of primary aluminum due to current high electricity prices. Additional smelters could follow suit if energy prices continue to trend higher.
The ongoing energy crisis raises concerns that the transition to renewables will experience consistent speedbumps, as fossil fuels have already been brought back to life in some capacity while clean energy initiatives accelerate. Bloomberg notes that demand for renewable energy and electric vehicles…
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