What’s the price of aluminum right now? That’s the million-dollar question that isn’t always easy to answer.
What is the Price of Aluminum?
Recent data reveals a noteworthy 7-8% upswing in the price of LME ingot, a pivotal element impacting the cost of common alloy aluminum. A key driver behind this trend is the movement in alumina prices, a critical material in the aluminum production process.
Much akin to how iron ore is indispensable in steel manufacturing, alumina plays a vital role in aluminum production. Sourced from bauxite, the primary raw material alongside aluminum, alumina undergoes refinement before contributing to aluminum production.
Concerns surrounding the environment and regulatory issues in China have led to a reduction in alumina production, contributing to a tightening market. Furthermore, a significant explosion at a bauxite facility in Guinea has added to the market's constraints. Although these incidents might have short-term impacts, they have tangibly affected the aluminum market.
While the percentage change in alumina prices might not appear substantial when viewed against the backdrop of the volatile past five years, recent developments, such as a 25% surge in China and a 10% increase in Australia, carry significance. These fluctuations are serving as a cost-push mechanism, influencing the prices of LME aluminum.
Market participants are keenly observing these developments, as evidenced by the Commitment of Traders report—a metric reflecting the sentiment of the financial community. Up until early December, a bearish stance prevailed, dominated by short positions. However, the sentiment has shifted towards marginally bullish territory, influenced by factors related to the crucial raw materials in aluminum production.
Nick Webb, Ryerson's director of risk management, commodities hedging, digs in deeper in the video below:
What Makes Up the Price of Aluminum?
Unlike with other commodities like oil, determining the price of aluminum encompasses more than simply the cost of the raw material.
First, it’s important to understand the three factors that influence the price of aluminum.
- The Commodity. This is cost of the raw material and traded on the London Metal Exchange.
- The Premium. For the U.S., this is S&P Global Platts Midwest Premium. It is a regional differential to the global price of aluminum. It is impacted by the regional cost of logistics,and supply and demand conditions in the U.S.
- The Conversion. This is the price that mills charge to convert the commodity to usable product. The price is driven by capacity availability and competition.
And that is where the story of how market factors have influenced the pricing of aluminum begins. Check out the video below:
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