Aluminum Hits $3000 for First Time in 13 Years Supply Snarl

Aluminum reached $3,000 a ton for the first time in 13 years amid expectations that supply disruptions are here to stay, while demand keeps rising.  

The metal kept climbing Monday after advancing 15% over the last three weeks. Chinese output is down amid drives to reduce emissions and conserve power, while a coup in bauxite producer Guinea has raised concerns over the supply of the material used in aluminum production. 

Smelters in the European Union are also facing rising costs with both carbon credit and power inputs at record highs, Goldman Sachs Group Inc. said.

"In China and increasingly in the EU, policy risk to aluminum supply is growing," Goldman analysts including Jeff Currie said in a note released Monday. While the bank doesn't see the recent coup in Guinea as materially impacting bauxite, upside risks remain as regional tensions could generate further logistical bottlenecks, they said.

Snarled supplies will dog the industry through the rest of this year and most of 2022, according to many participants at the Harbor Aluminum Summit in Chicago, with some projecting it could take as long as five years to resolve the issues.

The energy-intensive metal has risen by around two-thirds over the past year.

Aluminum climbed as much as 2.6 per cent to US$3,000 a ton, the highest intraday level since 2008, on the London Metal Exchange. It traded at US$2,992.50 as of 7.09 am in London.

In China, the metal surged as much as 5.4 per cent to 23,790 yuan, the highest since 2006. Other base metals were mainly lower, with zinc falling 0.9 per cent in London.

Aluminum Corp. of China Ltd., the country's largest smelter, surged as much as 12 per cent in Hong Kong on Monday.

Chinese material equities may see a further re-rating as more government moves to curb steel production to cut emissions could boost prices for cement, steel and aluminum, Citigroup Inc. analyst Jack Shang said in a note.

Aluminum Corporation of China stock blasted to 52-week highs

Aluminum Corporation of China shares were on fire last week, popping almost 24% on heavy volumes by Sept. 9 to hit 52-week highs before cooling off a bit. The stock was still up 18% this week as of 3 p.m. EDT Friday, thanks to an unexpected event that has rattled global aluminum markets.

West African country Guinea has the world's largest reserves of bauxite, which is the principal ore for aluminum. China, the world's largest aluminum producer, sourced nearly half its bauxite requirement last year from Guinea.

Prices of aluminum have skyrocketed this year as demand soared even as supply concerns loomed large, especially after China cut down production as an anti-pollution measure. A freak fire in a refinery in Jamaica late August further exacerbated supply concerns. Roy Harvey, CEO of one of the world's largest aluminum producers, Alcoa, reportedly even told The Wall Street Journal recently that "there's just not enough metal inside of North America."

Given the backdrop, a major political event in the world's largest aluminum feedstock suppliers was bound to send the aluminum industry into a tizzy.

A military coup in Guinea last weekend stoked fears of a shortfall in supply of bauxite from the nation, sending aluminum prices on the London Metal Exchange to 10-year highs. Shares of aluminum mining companies like Aluminum Corporation of China shot up in response. Aluminum Corporation is among the largest aluminum companies in China. It operates through the entire process chain, from upstream bauxite and coal mining to downstream trading of aluminum, coal, and other ancillary products.

Meanwhile, coal prices in Asia also hit record highs this week thanks to China's production curbs that hit the nation harder this time thanks to an unexpected surge in demand for electricity, backed by the economy's reopening after COVID-19 restrictions. So although Aluminum Corporation of China consumes large quantities of coal, it sources it primarily from its own mines and even sells a portion to external customers. Higher coal prices, therefore, work in the company's favor.

Volatility is inherent in commodity stocks thanks to fluctuating commodity price. Yet base metals like aluminum have wide uses especially in high-growth industries like electric vehicles, which is why some analyst urge investors to not panic when metals and mining stocks temporarily crashed recently. Investors in stocks like Aluminum Corporation should always be prepared to stomach volatility.