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Below is quote on  Quote on Aluminum update A tight supply market for Aluminium By Mr. Yash Sawant, Research Associate, Angel Broking Ltd

A tight supply market for Aluminium

Aluminium prices rose over 3 percent on the LME as well as the MCX in July’21. A range of events like a weaker Dollar, mounting supply concerns and bets on increase in demand for industrial metals in the times ahead created a supportive environment for the entire base metal’s spectrum.

Disrupted supply chain

As per reports from the National Bureau of Statistics, China Aluminium output in June’21 stood at 3.29 million tonnes, down from 3.32 million tonnes of output reported in May’21. Restrictions on power consumptions in major manufacturing regions of China led to the second monthly decline in Aluminium production. 

Output woes from China further intensifiedasthe recent floods in central China's Henan provincetook a severe hit on the supply of industrial metals, primarily impacting Aluminium and Lead output. Production activitiesin China are expected to remain under pressure until the impacted industrial regions resume operation. Low production from China amid growing demand for Aluminium and other industrial metals around the globe might continue to support prices.

China’s attempts to ease prices

The recent gains in industrial metal prices were despite of China’s persistent moves to ease commodity prices. A spike in commodity prices in the latter weeks of May’21 hampered the margins for the downstream industries in China forcing some of the processing capacities to cut or halt operations. China implemented a number measure like increasing margins, tighter scrutiny of Commodity markets, releasing state metal reserves in order to avoid any malicious activities and ease the soaring prices.

After the successful first round of China’s State Reserve metal auction held in the first week of July’20, China's National Food and Strategic Reserves Administration auctioned the second sales of their reserves (30,000 tonnes of copper, 90,000 tonnes of Aluminium and 50,000 tonnes of zinc) on 29th July’21.While the move to sell the state reserves was aimed at dragging Commodity prices lower, a less than expected quantity allotted in the second auction kept the industrial metal prices elevated.

Outlook.

Despite of a promising outlook, a major setback for the industrial metals spectrum in the near term is the evident slowdown in China’s industrial sector. High raw material prices have forced many producers limit operations which undermined the demand prospects for industrial metals.Mounting demand uncertainties from major Aluminium consuming nation China might overshadow all the positive elements and keep a lid on Aluminium prices.

However, an accommodative stance by Central banks around the globe and a disrupted supply chain is expected to continue supportingAluminium and other industrial metal prices.

Along with the booming Electric Vehicle segment and a flurry of infrastructure projects, a move towards a greener environment by many nations is set to create some fresh demand for industrial metals. Increase in usage of renewable energywill also require vast quantities of Copper, Aluminium and the other nonferrous metals in the coming years.

We expect Aluminium prices to test levels of Rs.215 per kg in a months’ time frame. (CMP : Rs.208)

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