The Omicron variant of COVID-19 has acted as a speedbump of sorts in growth revival which had picked momentum from the second half of 2021. However, come 2022, the expectation is that industries will tide over this crisis and therefore the demand for aluminium is bound to increase as electronics, automobile, packaging industries pick steam. The demand for the metal is also set to rise as it is more environmentally friendly. So, what does 2022 hold in store? Let’s find out:
How was the year 2021 for aluminium as a commodity?
Aluminium prices hit a 13-year high of $3172 a ton in 2021. Prices have risen around 35 percent year-to-date on the back of pent up demand from lightweight construction, automobiles and packaging.
On the supply side, production was hit because of the power curbs in China and Europe. Aluminium production is energy-intensive. About 13,000- 17,000 kWh of electricity are required to produce 1 tonne of aluminium. Besides strong demand, high energy costs were one of the contributing factors to the surge in aluminium prices.
What is happening in aluminium right now?
Aluminium prices are off around 18 percent from the year’s highs. There are many reasons for this correction. With central banks across the world tightening liquidity, some investments could move out from commodities into bonds and other asset classes that benefit from a strong dollar. There are concerns of a slowdown in China and also that a sharp rise in COVID cases could hit global demand for aluminium.
What is the outlook for 2022?
Traders and analysts tracking this space expect aluminium prices to rise in 2022 as well. They are quite bullish in their outlook for the first half of 2022 due to lack of investment in smelting capacity, supply disruptions in Brazil, Jamaica, and on-warrant LME stocks at 2005.
LME warrants are documents that represent an entitlement to a specific lot of LME-approved metal. Warrants can only be issued if the underlying metal conforms to the quality requirements details specified by the LME
Any other factors?
Yes. The growing shift towards sustainable development has also led to increased demand for aluminium because of the metal’s attributes like resistance to corrosion, being a good conductor of electricity and being lightweight.
The production for 2022 is estimated at 69.95 million tons, but the consumption is estimated to be even higher.
What could put a lid on aluminium prices in 2022?
If prices continue to climb, some players may start investing in fresh capacity or increase production. While the impact of this may not be felt immediately, it could put pressure on aluminium prices in the second half of 2022. China’s economy slowing more than expected could also be a dampener.
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(Edited by : Abhishek Jha)