Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Concern has arisen over the amount of aluminium stocks lying in undisclosed warehouse systems scattered across the globe.


Total global supply of the metal sits at 2.78mn mt—including 1.27mn mt in LME warehouses—however, an estimated 4-9mn mt of inventory remains unreported. 


Effective February 1, 2019, the LME instituted changes to increase its warehouses’ competitiveness by drawing attention to unreported inventories, which the exchange fears is leading to price suppression.


Aluminum manufacturers are already considering significant operational changes to remain ahead of what they believe to be a couple of turbulent years.


Alcoa and Rio Tinto have seen their aluminium prices lose 15pc value since the beginning of 2018. Echoing most industry players, the two companies attribute the price erosion to overcapacity. 


Primary aluminium has risen 10pc since 2015, bringing its potential global supply, at the end of 2018, to 64mn mt per annum. Through the first three quarters of 2019, the market witnessed increased investment and capacity. Alba started its sixth potline in the Middle East, making it the largest aluminium producer outside of China. A $3bn investment rattled investment banks about supply surpassing end-user demand in a shrinking market.


Alcoa and Rio Tinto are trying to reverse the trend by closing shops in Australia and New Zealand, removing 800,000mt of supply from the market, which is equivalent to 1.2pc of global capacity. The removal will likely have little effect without a significant demand increase.


Aluminum content in cars has increased in the last decade, but overall usage declined in line with vehicle demand. The automotive industry accounts for 38pc of US aluminium usage. For pricing to stabilize and then reverse, global capacity must decrease at least 1mn mt, and US consumption, particularly in the automotive sector, must also increase.

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