Aluminum prices have been rising steadily since the beginning of 2021 but in the past three weeks, the metal has become about 14 percent more costly, and touched $3,000 per tonne, the highest since 2008.
Why is the metal turning the new oil?
1) Rising demand from stimulus packages. Aluminum is the second highest metal used after steel. It is used in sectors like packaging, construction, electrical equipment’s, beer cans etc. It is also used heavily in electric vehicles,
2) Global aluminum demand is expected to grow gradually on “green” demand: Car manufacturers will use more aluminum to make lighter cars in order to be more fuel-efficient. Aluminum is 65% lighter than steel apart from being strong & recyclable.
3) Risk of global supply of bauxite: Bauxite is the key raw material for aluminum manufacturing. There has been political instability in west African nations of Guinea. The country caters to 20-25%- 30% of global supplies of bauxite. As a result, there are supply concerns of aluminum too which have led to price increase. Hindalco has adequate alumina supplies and is not dependent on imports.
4) CHINA FACTOR:
1) Why is there a power shortage in china?
– China has always struggled to balance electricity supplies with demand. As the world starts to reopen after the pandemic, demand for Chinese goods is surging and the factories making them need a lot more power.
China is the biggest coal consumer in the world. 70% of China’s electricity is generated using coal.
China’s coal production grew by 6% this calendar year but power output surged 14%, leading to coal short fall. Power plants are also not willing to produce more as coal prices are rising and electricity prices are government controlled.
As the world’s top producer of carbon dioxide and other polluting gases, china’s seems to take a step towards climate change.
– XI jinping effect
China’s President Xi Jinping announced in late 2020 at a United Nations summit on climate change that the country would cut its carbon dioxide emissions per unit of gross domestic product, or carbon intensity, by more than 65% from 2005 levels by 2030.
2) What is the impact of this action on china?
Residential Impact: Traffic lights are turned off in some areas, blackouts in homes, office workers to use stairs for the first three floors, shopping malls to keep advertising signs on fewer hours, and for homes to use natural light as much as possible and to keep air conditioners above 26 degrees Celsius.
Industrial Impact: Official figures have shown that in September 2021, Chinese factory activity shrunk to the lowest it had been since February 2020, when coronavirus lockdowns crippled the economy.
Goldman Sachs has estimated that as much as 44% of the country’s industrial activity has been affected by power shortages. It now expects the world’s second largest economy to expand by 7.8% this year, down from its previous prediction of 8.2%.
Investment bank Morgan Stanley estimates 7% of aluminum capacity in China has so far been impacted by power curbs. For cement, 35% of China’s total production has been impacted, and around 30%-40% of major petrochemical production capacity,
China will churn out roughly 1.5/ 2 million tonnes of aluminum less than planned this year ( 5% of the total national capacity) , which means lost metal sales of $4.5 billion
The production of aluminum, which accounts for around 4% of China’s total carbon emissions, is one of the industries, along with steel and cement, that are expected to rein in emissions.
Beijing has said that it wants to cap the industry’s annual smelting capacity and producers to reduce emissions, while shifting to secondary or recycled aluminum production.
3) What is the impact on Aluminum Hindalco?
A bullish trend is visible in aluminum prices as demand remains strong and supply remains tight.
Higher aluminum prices will be required to incentivise smelters to invest in cleaner methods of production against the backdrop of rising demand and slowing supply growth.
The domestic operations of Hindalco benefit not only from firm aluminum prices but its captive bauxite and alumina capacities as well. Alongside the company’s US subsidiary Novelis also offers a cushion from volatile aluminum prices which is a converter of metals and sees strong demands of its products. Novelis contributes to more than 60% of Hindalco’s profits.
Hindalco continues to benefit towards this global shift towards “green & sustainable” economy.
Ending on this note, the aluminum industry is not always very green, on the other side, we always need aluminum to make our economy more green and sustainable.
– Ayushi Agarwal
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