Aluminium prices likely to drop 25% as Chinese output rebounds

Mumbai: Aluminium prices in India, which surged to Rs 300 per kg in March 2022, are expected to gradually decline in the second half of this fiscal and average Rs 225-235 per kg during the year, CRISIL Research said in a report.

Domestic prices of aluminium in India are linked to three-month contracts on the London Metal Exchange (LME), where the average price was $3,537 per tonne in March, 8.5 per cent higher when compared with the previous month. Despite the decline, CRISIL Research foresees the London Metal Exchange price averaging $3,100 per tonne in 2022, which is 25 per cent higher than in 2021. The ramifications of the Russia-Ukraine conflict will be a monitorable, and can affect price movement going forward.

On February 23, 2022, a day before the war broke, global aluminium prices were hovering around $3,220 per tonne. On March 7, they rose to an all-time high of $3,985 per tonne after the conflict in Ukraine stoked concerns about supplies from Russia -- at a time when there were production cuts in China and Europe.

Prices have since retreated to $3,200 per tonne because a sudden surge in COVID-19 cases in China has brought demand to a standstill, leading to an inventory build-up. This has opened up exports opportunity for Chinese traders.

Once the regional lockdowns ease, excess inventory would hit the global markets and weigh down prices. But there is unlikely to be a sharp fall in prices because demand would continue to be good.

The global aluminium market saw a deficit of 1.2 million tonne in 2021 due to lower output from China and Europe amid an energy crisis (aluminium smelting is an energy-intensive process), and a sharp recovery in demand as the pandemic began to ease. That compares with a surplus of 1 MT in 2020.

"Calendar 2022 will also see a supply deficit because of the extended supply cuts and robust demand globally, which will support prices. However, we expect the deficit to be relatively lower at 1 MT versus 2021 because Chinese output should improve in the second half," Hetal Gandhi, Director, CRISIL Research, said.