Could aluminium stockpiles disappear by 2024?

by BLOOMBERG

LONDON • Trading giant Trafigura Group has a stark warning for aluminium buyers: Deep shortages of one of the most widely used metals mean the world will run out of stockpiles by early 2024.

Demand for aluminium — used in everything from food packaging to cars to planes — has surged as the global economy recovers from the pandemic, while an energy crisis in Europe and China has crimped supply.

That’s put prices on the brink of a record high, and the prospect of even more gains will add to the headache of red-hot inflation facing consumers and central banks.

“Aluminium is a very bullish story,” Philippe Mueller, Trafigura’s head of aluminium trading, said in an interview. “You could see parabolic spikes once stocks run out.”

Mueller declined to forecast how high prices might climb, but warned that the supply tightness that has underpinned the rally will only get more extreme in the coming years.

The advance has been almost relentless, with aluminium more than doubling since the early days of the Covid-19 crisis. Spot prices on the London Metal Exchange (LME) have also fetched big premiums over futures contracts, signalling a squeeze on supply.

Combined stockpiles tracked by the LME and Shanghai Futures Exchange are near the lowest since 2008.

While new aluminium smelters will have to be built to meet growing demand, there’s little prospect of that happening in the short term, according to Mueller.

“The deficit is now moving at such a speed that it’s unsolvable, actually,” he said.

More expensive aluminium threatens to further raise the cost of consumer goods, at a time when energy bills are jumping and food prices are near a record. Materials from copper to palm oil to crude have surged, with some Wall Street banks projecting a commodities supercycle that could last for years.

For aluminium, supplies had been plentiful for most of the last decade as China built many new smelters.

But as Beijing clamps down on carbon emissions, traders and analysts believe that the country’s largely coal-reliant aluminium industry will no longer boost supplies.

The government has set a cap on smelting capacity, and while it remains in place the onus will be on producers elsewhere to step up output to meet consumption needs.

“Western producers have hardly added any production over the past fifteen years,” Mueller said. “The question is: what is the incentive price?”

Trafigura, one of the top traders of the metal, isn’t alone in forecasting higher prices.

Goldman Sachs Group Inc sees aluminium hitting a record US$4,000 (RM16,763) a tonne within the next 12 months as buyers face “unprecedented” supply tightness.

Still, Mueller’s prediction that inventories will be entirely depleted in just two years highlights the potential fireworks that some traders are bracing for.

“When you look at these numbers, you would need huge demand destruction to balance the market,” he said. “It’s difficult to be short in such a market.”