Aluminum’s record high price means a windfall for stocks?

Highlights

Aluminum price hit a 13-year high of US$3,235 on Tuesday.

Leading aluminum producer Slovalco cut its output by around 60%.

Aluminum stocks in LME-registered warehouses fell to their lowest level since 2007.

Aluminum prices hit a 13-year high in intraday trading on Tuesday as concerns over the falling supplies in global inventories grew. Benchmark aluminum on the London Metal Exchange (LME) surged more than 3% to US$3,235 a ton on Tuesday morning.

The metal and energy prices have been rising with increased industrial consumption lately. A similar spike in aluminum prices was recorded in October last year when it hit US$3,229.

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Its prices gained over 57% in the past 12 months, while in 2022, it grew about 14%. The global production of this lightweight metal, mainly used in the packaging and transport industry, has been declining over the past year. Tuesday’s price gain was the sharpest increase since 2008.

China, which accounts for more than half of the global aluminum supply, has limited output to cut pollution. The smelters require vast amounts of electricity to produce aluminum. The coal-fired power plants have been a major source of pollution in the country.

Also, China has tightened the regulations to improve the air quality during the Beijing Olympics.

There were also concerns over the covid outbreak in the aluminum production city, Baise.

According to the local industry association, the disruptions to the transportation industry due to covid have stalled supplies, although the aluminum output in Baise stayed stable.

Besides China, several other global aluminum producers are seeing production disruptions.

Russia, another major producer, faces the threat of sanctions over the Ukraine crisis. The uncertainties in Russian supplies weigh on the market.

On Monday, the Slovakia-based aluminum company, Slovalco, one of the leading global producers, said it had cut output by 60% due to higher power costs and emission payments. The lack of adequate government compensation is also affecting the local aluminum industry.

In Peru, the Las Bambas copper mine faces repeated disruptions due to protests. The mine accounts for around 2% of the total global supply. Protestors, demanding financial contribution from the mine, have blockaded a major access road to the site since last month. Many global mining companies, including China, operate mines in the Andean country.

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Aluminum prices push stocks higher

The rising aluminum prices brought windfall gains to the metal stocks. On Tuesday, the stocks of many leading mining companies were up. The timing couldn’t have been better as traders were struggling to readjust their portfolios due to the recent slump in the stock market.

For instance, stocks of Alcoa Corp (NYSE: AA), Aluminum Corporation of China Limited (NYSE: ACH), Century Aluminum Co. (NASDAQ: CENX), and Arconic Corporation (NYSE: ARNC)

saw notable gains in intraday trading on Tuesday.

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Based in Pittsburgh, Pennsylvania, Alcoa is one of the world’s leading aluminum producers. The stock was up nearly 10% in the extended-hours trading. The stock rose 192% in one year.

ACH is a China-based aluminum company. It sells primary aluminum and aluminum alloy products. The stock rose 8.4%. The stock gained around 60% over the past 12 months.

Likewise, Century Aluminum, one of the leading US aluminum companies based in Chicago, Illinois, saw its stocks jump more than 11%. The stock returned about 25% gains over the past year. Also, the shares of Arconic (ARNC), also based in Pittsburgh, Pennsylvania, which manufacturers aluminum sheets, plates, etc., gained 3.4%. It is up 14% over the past year.

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Bottomline

The global aluminum inventories have been declining sharply. In the LME-registered warehouses, aluminum reserves fell to their lowest level in 15 years to 767,700 tons. The Shanghai Futures Exchange warehouses declined around 20% to 266,906 tons this year.

The LME-registered warehouses had around 2 million tons in March 2021.

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