Aluminum — Commodity Forecast 2017–2018

This paper provides up-to-date information on factors affecting the price of aluminum on the global market — examining production, demand, trade and trade policy, and competitiveness factors — and projects what to expect for Q4 2017 and beyond.

Aluminum at the center of U.S. policy

Aluminum moved to the center of U.S. trade policy: the U.S. filed a complaint with the World Trade Organization accusing Chinese subsidies to domestic aluminum producers of suppressing global prices, followed by an investigation into imported aluminum (and steel) as a national security threat.

The initiative had the potential to translate into quotas or tariffs, or both, for imported aluminum — negatively impacting many U.S. industries that have nothing to do with national security. The frontrunners: automotive, industrial machinery manufacturing, construction, and packaging.

The source of the problem: Chinese overcapacity

Aluminum prices decreased significantly in 2016 but began rising through 2017. The underlying driver was Chinese overcapacity: the central government had been struggling — somewhat unsuccessfully — to reduce smelter capacity.

Beijing’s crackdown on overcapacity and polluting smelters met opposition at the local government level, where maintaining employment rates and tax revenue was the priority. Meanwhile, aluminum inventories in China rose more than four times year-to-date.

What it means for buyers

For manufacturers buying aluminum castings and components, the combination of policy risk and inventory dynamics argued for diversified sourcing, indexed pricing agreements, and close tracking of both the AMM (American Metal Market) and SMM (Shanghai Metal Market) indices — the same disciplines MES applies across its commodity-exposed programs.