Base Metals: Aluminum and copper soon in short supply?
Base Metals: Aluminum and copper soon in short supply?

10 May 2023 – Demand for base metals, such as aluminum and copper, is meeting an increasingly tight supply. And the expansion of mining capacities is not keeping pace. China is massively expanding EAF capacities for steel, which should soon make scrap even more sought-after. Is the real demand and supply scenario in the market clouded by political and economical fist fight?

Aluminum stocks continue to fall while smelters run at full capacity

Chinese aluminum smelters in key production provinces have been running at very high-capacity utilization for several months. In March alone, as reported by Chinese media, with a utilization rate of 96 to 100%, while in April further capacities should be ramped up. Demand for aluminum is seen as a significant factor in China’s economic development and the capacity utilization rates of the smelters here point to further recovery.

Aluminum supply bottlenecks expected

In Europe, aluminum producers had shut down half of their smelting capacities, about 1.2 million MT, during the energy crisis and, according to industry experts, could leave it at that for a while. From a technical point of view, an immediate start-up would not be possible anyway with cooled-down smelters and without subsequent necessary repair work.

Thus, a supply deficit could arise very soon. A rising Chinese economy, with a ravenous appetite for aluminum and emptying stocks in the warehouses of the LME. If now also Chinese smelters have to reduce their production due to energy shortages in China, this could quickly lead to significantly rising aluminum prices.

Copper still in short supply, no improvement in sight

Copper stocks at the SHFE had fallen further after media reports at the beginning of the week and had caused a rebound in prices. The copper stocks in the warehouses of the LME are also at a historic low for several months and correspond to just 40% of the inventory from the same period last year.

Copper mining capacities cannot keep up with demand

And according to industry experts, no improvement is to be expected here. By 2040, global demand is expected to increase by almost 60%, while mining capacities are expected to grow by 16% at most. This is likely to continue to ensure tight inventories of the all-important base metal copper, which is considered one of the most important indicators of economic development.

China continues to expand EAF capacities, scrap demand should increase further

Chinese steelmakers are increasingly focusing on the development and construction of Electric Arc Furnaces, which are considered a key technology in green steel production. One of China’s largest steelmakers alone now has nearly 10 million tons of EAF capacity online and is already planning to replace more capacity with EAFs.

This conversion and focus on EAF is also likely to further fuel demand for scrap in China and make it scarcer. With the launch of the EU Carbon Border Tax CBAM, the run on scrap as a green raw material is likely to become even stronger among international steelmakers.

Economic battle between producer countries and consumer countries?

With base metals in high demand, the increased trend towards green commodities and the shift in production towards more sustainability, the question arises as to why the ghosts of supposed recessions are being bandied about in the media? Might the truth lie elsewhere and is the real demand and supply scenario in the market clouded by political and economical fist fight?

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