Aluminum Outlook Hinges on Cost of Key Raw Material, Trafigura Says

(Bloomberg) — The most important dynamic driving the outlook for aluminum prices is the surging cost of a key raw material needed by smelters, according to Trafigura Group.
Prices for alumina — refined from raw mined ores and smelted into aluminum — have spiked 50% this year, to the highest since March 2022, driven by production disruptions at alumina plants and rising demand from aluminum smelters.  
Meanwhile, aluminum prices are little changed year-to-date on the London Metal Exchange. Smelters that don’t have their own alumina supply are facing growing commercial strain. 
“It’s the most important thing in the market right now, and anyone who’s not looking at it needs to start looking,” Henry Van, a senior analyst at Trafigura, told delegates at a Fastmarkets aluminum conference in Athens. “This is really, really terrible for aluminum producers worldwide.”
If high alumina prices persist for long enough, smelters may start cutting back production, Van said, though Trafigura’s base-case assumption is that supply imbalances this year will be resolved, reducing some of the risk.
“I think it’s more likely that the pressure will ease,” Van said. “We’d need to see sustained pressure on these smelters for another year for cuts to happen.”
But rival metals trading house Concord Resources Ltd. — which runs an alumina refinery in Louisiana — warned that high prices and the shortfall in supply may persist for longer than many in the industry expect.  
The spike in prices “was not well anticipated,” and the alumina market is “much tighter than is popularly appreciated,” Concord’s head of research, Duncan Hobbs, told delegates. “I think prices can hold higher for longer, certainly than the forecasts that I’ve seen.”
The biggest risk to Concord’s bullish view is if China uses its spare alumina-production capacity to fill the supply gap, Hobbs said. But the country’s alumina output has only grown marginally so far this year, despite a huge commercial incentive, he added.  
“Why is China not turning out more alumina, if these capacity numbers are correct,” Hobbs asked. “I would venture that every alumina refinery today is focusing as hard as it can to push every ton out the door.”
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