Aluminium prices rise as stocks reach record levels

Futures trading


Aluminium Mar13.pngThe blog was with the mining industry last week, when giving the keynote speech on The Impact of the ‘Demographic Cliff’ on Demand Patterns at the annual Metal-Pages conference. Mining is seeing similar demand patterns to those in chemicals, whilst the price performance of aluminium shows very similar influences to those at work in oil markets, as the above chart of developments in the LME aluminium price since 1993 shows:

• Prices ranged between $1000 – $2000/t from 1993 until 2005, just as oil prices ranged between $10 – $30/bbl
• They then shot up to peak at $3000/t in 2008, whilst oil rocketed to $145/bbl
• After collapsing in Q4 2008, both have recovered to trade above historical levels

Aluminium is, of course, of great interest in its own right, and as a critical use for caustic soda.

There have been 2 key developments in aluminium markets since 2009. The first was the expansion of China’s demand until 2011. The second has been the enormous growth in the role of financial players. The former is well understood, but the latter is quite remarkable:

• Bloomberg report that stocks are now at record levels and are expected to keep rising in 2013 to reach 8.67m tonnes. This is enough to build 62m cars (total annual world volume)
• Production is expanding rapidly due to the high prices, and is well ahead of demand
• The reason is that 80% of all aluminium stocks are locked into speculative financial contracts, and so are unavailable for use by genuine consumers
• This volume has overwhelmed warehousing operations at the major exchanges such as the London Metals Exchange. Buyers usually wait a year to obtain supplies
• Reuters has reported that the wait is deliberate, as the major warehouses are owned by companies such as Goldman Sachs and Glencore – who profit from high storage fees

All this is, of course, completely legal within the LME’s rules.

Aluminium is thus another example of the way in which global financial markets have totally lost their true role in enabling price discovery. Instead, they have become a speculative tool for those with access to low-cost central bank liquidity.

The situation can clearly not continue forever. But for the moment, end-consumers have no choice but to pay today’s high prices. Similarly, when the party does eventually come to an end, companies (including chloralkali producers) will suffer major losses on inventory values. Whilst operating rates may well crash until the stock overhang is worked down.


Italy's Grillo calls for referendum on leaving the euro


My words fly up, my thoughts remain below: Words without thoughts never to heave...

Learn more

Europe's social shock-absorbers show crisis strain


Readers outside Southern Europe may not realise the growing crisis that is devel...

Learn more
More posts
Futures markets, US shale, the big winners from OPEC meeting

There were only two winners from the past 3 months of OPEC’s “Will they?, Won’t th...

China has burst the commodities superbubble

China’s New Normal policies are taking global commodity markets in a new direction, as I descr...

Oil markets begin to slide as Great Unwinding resumes

Oil prices have fallen around $5/bbl, since my suggestion last week that a “New oil price fall...

Markets pause for breath as oil traders enjoy upstream volatility

There are some signs of a recovery in some markets, but the overall picture is still very quiet for ...

Oil prices jump 20% in 2 days in SuperBowl weekend coup

An astonishing coup appears to have begun 10 days ago, in the last 45 minutes of trading in US oil ...

August highlights

Many readers have been taking a well-earned break over the past few weeks.   As usual, therefore, ...

Oil prices break out of their triangle – downwards

The Great Unwinding of the central banks stimulus policies is underway, as discussed last week.  Oi...

US oil inventories hit record high as supply increases

Imagine that 5 years ago, you had been asked by your Board to forecast future oil prices.  And supp...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more