Harbor Intelligence analyst Jorge Vazquez says aluminum prices could hit $1,700 per metric ton by June. On Thursday, the spot aluminum contract on the London Metals Exchange closed at $1,487 per metric ton.
Aluminum prices touched a four-year low last month hitting $1,455. While metal prices have fallen across the board, aluminum’s troubles were compounded by the shutdowns in the automotive industry.
The automotive sector accounts for the bulk of global aluminum demand. The US automotive industry has also reopened which should support demand for metals.
“With all the reopenings taking place, demand is getting better relative to the month of April, so funds tend to flow to cyclical investments such as aluminum,” Vazquez told Bloomberg.
Vazquez added: “Also, aluminum is energy in solid form, energy is the most strategic cost component when producing aluminum.”
He added: “When oil prices go higher, aluminum prices tend to go higher.”
Energy costs can make up almost one-third of the costs for aluminum smelters, according to industry estimates. Vazquez said: “At today’s oil price, aluminum prices tend to average around $1,700/ton.”
Energy prices have regained ground after the West Texas Intermediate contract turned negative last month. Goldman Sachs said that oil and livestock are the two commodities to watch in 2021.
If aluminum prices rise to the level Vazquez forecasts, it would benefit aluminum producers. Alcoa and Century Aluminum are the leading US-based aluminum producers. US President Donald Trump imposed a 10% tariff on US aluminum imports in 2018 citing them as national security risks. However, the tariffs did not manage to guard against the sharp fall in prices.
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