Aluminum Prices Move Sideways As Energy Crisis Persists

After seeing a short-term bullish rebound in July, aluminum prices began to decline again in early August modestly. All in all, the rebound was insufficient to suggest a bullish reversal. As such, global aluminum prices remain within a macro downtrend despite recent directional uncertainty.

Aluminum Prices Move Sideways as Energy Costs Make Production Unprofitable

Before Russian energy giant Gazprom decided to cut Nord Stream 1 gas flows to 20%, Europe had already shuttered roughly half of its aluminum smelting capacity. According to Alcoa CEO Roy Harvey, high energy prices mixed with low aluminum spot prices in June made between 10% and 20% of global aluminum smelting operations unprofitable. In China alone, smelter unprofitability extended to around 50% that month. Meanwhile, Norsk Hydro ASA CFO Kildemo estimated that more than one-third of global smelters had operated at a loss. Now that European countries face energy rationing as energy prices continue upward, aluminum production, especially in Europe, remains pressured. According to a survey conducted by the German Aluminum Association, 9 out of 10 companies would be unable to switch energy sources should gas become unavailable. Indeed, energy shortages could cause the roughly 900,000 tons of production cutbacks we’ve witnessed this year to double moving into 2023.