Aluminum is the latest casualty of global economic headwinds as prices drop amid allegations of Russian aluminum dumping, global demand weakens and operating costs skyrocket.
Earlier this week, aluminum stocks in warehouses at the London Metal Exchange (LME) surged, prompting fears that Russian-origin aluminum could be dumped.
The White House is already considering banning aluminum imports from Russian producer Rusal.
Unsold metals tend to end up in the LME warehouse system, warehouses approved by exchanges to store LME registered metals.
Timna Tanners, a mining and metals analyst at Wolf Research, said on CNBC’s “Squawk” that “weak aluminum markets have led to weakening global demand, especially in China, and Russia’s lack of aluminum in global markets.” It was very disappointing to witness a kind of double whammy from the dumping.” Box Asia” airs Thursday.
“So definitely this quarter reflects those challenges.”
The outlook for aluminum is bleak
Tanners added that the next quarter also doesn’t bode well unless some action is taken to stop the potential dumping of Russian metals and boost demand from China, both in infrastructure development and property construction.
Given that President Xi Jinping suggested at the Communist Party Congress in Beijing that China would stick to its zero-coronavirus policy, so far there are few signs of a rapid improvement in Chinese demand, she said. added.
Tanners said this is exacerbated by softening demand in other areas as interest rates rise.
Aluminum is the latest victim of headwinds in the global economy as prices plunge amid allegations of dumping of Russian aluminum, weakening demand worldwide, including in China, and soaring operating costs.
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Aluminum producers such as US producers Alcoa Tanners said much of Europe is also facing rising operating costs, largely due to rising electricity prices.
“Electricity is about 30% of the total cost of an aluminum smelter, so it’s completely squeezed some European operations,” says Tanners.
CFRA Research analyst Matthew Miller was also surprised by Alcoa’s recent third-quarter loss. Alcoa attributed this to lower aluminum prices and higher energy and key raw material costs.
Like Tanners, he told CNBC’s “Street Signs Asia” that “things could get worse in the fourth quarter before they get better.”
Increased stockpiles are a bad sign
Vivek Dahl, a mining and energy commodities analyst at the CBA, said the LME has not disclosed where it will source aluminum when inventories rise, but that base metal prices have already hit recession fears. He said the increase in global stockpiles was a bad sign given the
The influx of Russian aluminum into LME warehouses creates further complications, Dhar said in a note.
“If the exchange becomes a dumping ground for Russian metals, LME prices could trade at a discount to fundamentals,” he said, adding that Russia accounts for about 17% of global aluminum production. rice field.
“The LME is keenly aware of the problem.”
It could also affect the global aluminum supply chain if the US moves forward with sanctions against Russian producer Rusal, ING economic commodities strategist Ewa Mantai said in a note Wednesday.
Mantai said this was last seen in 2018 when the U.S. Treasury Department imposed sanctions on Russian billionaire Oleg Deripaska and companies he owns, including Rusal.
Rusal is not only a major producer of primary aluminum, but is also part of the global supply chain required to produce metals, bauxite and alumina, she added.
“Rusal’s 2018 sanctions impacted operations in Guinea and Jamaica, and European smelters struggled to secure supplies of raw materials,” she said.