Aluminium prices set to rebound amid supply constraints, rising demand

Aluminium prices are set to bounce back from is bottom due its supply constraints amid steady increase in demand.

The prices have plunged 45 per cent from the March peak of about $2,400 a tonne now, driven by Chinese lockdowns and easing of supply concerns, said Crisil Research.

Despite the fall, aluminium prices are 40-45 per cent higher than the average of $1,925 seen between 2010 and 2021.

Emission concern

Limited capacity additions over the next five years will be a key to rebound of aluminium prices. China, which added over 16 million tonne capacity over the past decade is likely to take a pause to reduce emissions, it said.

Due to its large proportion of coal-fired smelters, China’s carbon emission intensity is higher at 11-13 tonne of carbon dioxide per tonne of aluminium compared with 4-10 tonne for the gas-powered smelters of Europe. Hence, China has not only capped aluminium smelting capacity at 45 million tonne per annum, but also plans to shift primary capacities to hydropower-rich regions in its south-east.

On the other hand, demand for aluminium is expected to see a structural growth over the medium-term driven by global green investments such as for electric vehicles, solar panels and renewable energy grids, most of which have high aluminium intensity.

Capacity additions

Hetal Gandhi, Director, Crisil Research, said green investments across major economies will lead to a strong uptick in demand for aluminium, but global capacity addition is expected to fall from 20 million tonne during the past decade to just 3-4 million tonne over the next five years.

Domestic smelters have also added 2.4 million tonne of capacity, registering a growth of 9 per cent till last fiscal.

However, domestic demand has seen slower growth of 4 per cent during the period, driven by power sector capex and cable conductor exports, with the excess produce finding its way into export markets.

India exports 58-62 per cent of its primary aluminium production.

Koustav Mazumdar, Associate Director, Crisil Research said despite the large share of exports, domestic primary aluminium manufacturers are expected to add only 1.4 million tonne of smelting capacity.

Investments in upstream alumina expansions to add over 6.4 million tonne of refinery capacity will lead to better cost control translating into higher profits.

All these capacity expansions over the next five fiscals will cost ₹45,000 crore, he said.

Domestic alumina requirement, currently at 8-9 million tonne, is expected to rise over 11 million tonne by fiscal 2027 driven by smelter expansion. On the other hand, production is at 7-8 million tonne (Vedanta imports over 50 per cent of its alumina requirement).

This is likely to change with investments in upstream alumina refineries taking capacity to 14-14.5 million tonne by fiscal 2027.

Published on

August 30, 2022

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