Market Overview

3 February 2022

Aluminium Pulls Its Way Up

The price of Aluminium on the London Metal Exchange (LME) rose above $3,100 per tonne at the end of January 2022. Aluminium gained more than 60% last year from $1960 per tonne in January 2021 and its price rose by 11% in the month of January alone, closing in on all-time highs.

But this February the metal’s price rolled back to $3000. Is it a downside trend or just a correction? The fundamental reasons behind this downfall may be explained below.

The major growth driver for aluminium prices over the last several months was the energy crisis that pushed energy prices sky-high in Europe and Asia. More than a half of global aluminium production is consumed by China and some 15% by Europe. The production of Aliminium is a very energy-demanding process. The cost of production is driven by the cost of energy, primarily gas or hydro-generation. Thus, high energy prices limit the production of aluminium along with the still rising costs. Such a double negative impact from the supply side pushes prices up.

Inflation pressures are pushing prices up from the demand side as the pandemic fades and business activity is restored. The wide use of aluminium in construction, the making of aircrafts and motor  vehicles, in the food and beverages industry, the power industry, and in wiring is the major driver for demand.

Those factors are expected to continue to help prices rise but perhaps not so much as during previous months. Nevertheless, this may be enough to push the price to new record highs above $3,200 per tonne, recorded in October 2021.

The technical picture suggests that the price of aliminium is within the upward trend and it will stay there until the price slides below $2516 per tonne. The recent price correction may last until the $2750-2820 zone that is limited by support levels and the Fibonacci retracement levels on timeframes D1 and H4.

 

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus
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