Aluminium prices have plunged around 45 per cent from March 2022 peak to around $2,400 per tonne now, driven by Chinese lockdowns and easing supply concerns.
Aluminium prices have likely bottomed out and should rise over the medium term, supported by two structural drivers: limited smelter capacity additions and an uptick in demand, as per a CRISIL Research report.
Aluminium prices have plunged around 45 per cent from March 2022 peak to around $2,400 per tonne now, driven by Chinese lockdowns and easing supply concerns. This followed a stupendous rally over the past two years, driven by strong global economic recovery after COVID-19 abated, and concerns about supply from China and Europe.
Despite the correction, prices are 40-45 per cent higher than the average of $1,925 seen between 2010 and 2021.
Limited capacity additions over the next five years will be the key to the rebound in aluminium prices. Pertinently, China, which added over 16 million tonne (MT) of capacity over the past decade, is likely to take a pause to reduce emissions. Aluminium smelting is highly energy-intensive, requiring 13,500-15,000 kWh per tonne.
“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 MT during the past decade to just 3-4 MT over the next five years. The robust demand growth, rationalised supply addition and healthy utilisation levels point to multi-year deficits of 0.5-1.2 MTPA in the global primary aluminium market post-2023,” said Hetal Gandhi, Director, CRISIL Research.
KoustavMazumdar, Associate Director, CRISIL Research, said “Despite the large share of exports, domestic primary aluminium manufacturers are expected to add only 1.4 MT of smelting capacity, goaded by the looming global deficit. Investments in upstream alumina expansions to add over 6.4 MT 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.”