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2020 Aluminum Crisis is Approaching!

April 24,2020.
According to the latest data from the International Aluminum Association, in the first quarter of 2020, a total of 16.072 million tons of primary aluminum was produced globally, which was 15.74 million tons from the same period last year, an increase of 330,000 tons and an increase of 2.1%.

This is a disaster for world aluminum producers.
Among all the uncertainties generated by COVID-19, one thing is certain. The use of aluminum has not increased at a rate close to this ratio.

The question now is how much it has fallen.Given that most of the world's automobile manufacturing capacity (a key end-use sector of aluminum) has been shut down, the intuitive answer is indeed very difficult.In the opaque aluminum market, the most real signal is the price. CMAL3 of the London Metal Exchange set a four-year low of $ 1,455 per ton earlier this month. The current transaction price is about $ 1490.At least aluminum will not have a "negative price" like the WTI oil contract, and storage space will not be exhausted, but this is part of the aluminum problem.Other industrial metals are experiencing supply shocks, partially alleviating coronavirus demand shocks, because mines around the world have been forced to stop operations due to blockades by major producing countries such as Peru.


However, even in countries with the worst shutdowns, such as South Africa, most aluminum smelters are designated as key industries and are allowed to continue operations.

Argentina ’s Aluar suffered the worst blockade. In order to comply with the government ’s emergency quarantine measures, the company temporarily closed 50% of its capacity at the Puerto Madryn aluminum smelter with an annual output of 460,000 tons.

Rio Tinto has idled one of four electrolytic aluminum production lines at its Tiwai Point aluminum smelter in New Zealand, while Hydro delayed the restart of its 95,000-ton production line at its Husnes aluminum smelter in Norway.


There are already signs that this new crisis will move towards the same script as the old crisis.

Since mid-March, LME inventories have increased significantly, with only slightly more than 400,000 tons of metal entering the registered warehouse.
However, this may only be the tip of the iceberg, because LME's shadow warehouse system has been growing over the past decade. Excess metal will first be absorbed by this “quasi-market” storage before becoming a LME-guaranteed metal.
At the same time, the spread on the London Metal Exchange (LME) has narrowed significantly, with the spot-to-three-month spread spreading to a positive spread of approximately US $ 40 per ton in recent days. This was not the return of the super futures premium of 2009, but it was the widest structure in four years.

In short, the aluminum market shows various signs that the mistakes of the past crisis are repeating itself.