Despite some idle furnaces, aluminum inventories rising

Lack of demand and continuation of primary production weighs on aluminum’s price.

April 2, 2020
Brian Taylor

As the auto industry in North America and Europe began shutting down assembly lines, aluminum producers in those parts of the world began cutting back output in their melt shops. Unfortunately, the scaling back of aluminum output may not be enough to match the lack of consumption. Compounding problems for aluminum oversupply is that China kept much of its capacity online even as it dealt with COVID-19 coronavirus-related work slowdowns.

Heading into April, the net impact of these factors appears to be an oversupply of semi-finished and finished aluminum and a low price reflecting the supply-demand imbalance.

A March 30 Hellenic Shipping News item describes the global aluminum market as containing “massive surpluses” thanks to the above-cited factors.

Even though prices spiraled downward in March, the article contends primary producers will not easily cut output, in part because “re-starting mothballed plants takes a long time and comes with a high cost, and smelters typically avoid closing them even if in the short term they are losing money.”

Recycled-content aluminum producers have been quicker to cut capacity, with Norway-based Hydro closing some of its extrusion plants and North American companies including Aleris, Audubon Metals, Real Alloy, Spectro Alloys and Superior Aluminum all reportedly reducing output.

Despite any such actions taken, exchange-operated warehouses around the world seem to be filling up with aluminum.

As of March 30, Reuters says the 1.15 million metric tons of aluminum in London Metal Exchange (LME) warehouses represents nearly a 20 percent increase since March 17. The nearly 530,000 metric tons in Shanghai Futures Exchange (SHFE) warehouses on March 30 represented a 177 percent increase from the 190,000 metric tons at the start of the year.

At the close of business April 1, aluminum was trading on the LME at $1,463.50 per metric ton (66.4 cents per pound). That represents a 15 percent decrease from its value on March 4, when it was $1,722.50 per metric ton (78.1 cents per pound).

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