Commerzbank Commodities Radar October 2020

Source: Bloomberg data

Aluminium in abundance

Detached from fundamental data, the price of aluminium (as well as that of other metals) has risen considerably over recent months. At over USD 1,800 per ton, aluminium reached its highest level in seven and a half months. Compared to its low in April, it was up by as much as 24% at times. Nevertheless, aluminium still lags behind the performance of copper and nickel, for example.

Unlike the other metals, global aluminium production has not been impaired by COVID-19 – on the contrary, as shown by data from the International Aluminium Institute. According to this, at 37.5 million tons, production exceeded the previous year's figure by 1.2% during the first seven months of the year, mainly thanks to developments in China. Therefore, aluminium production is well under way to exceeding the record high of 2018.

The considerable rise in aluminium prices since May has made production more attractive. This applies to China in particular, where the most-active aluminium futures contract has been trading above the average break-even level of Chinese smelters for two months now. The production cuts initially announced due to low prices will probably not materialise after all, especially as Chinese smelters are subsidised by the government. Instead, there are even new smelters that have started operations in China. According to the Antaike government research institute, annual production capacity has therefore increased by 680,000 tons. More than one million tons per annum are set to follow by the end of the year.

However, market balance data from various providers shows that there is no demand for such large quantities of aluminium. The World Bureau of Metal Statistics quantifies the surplus in the first half of the year at 1.34 million tons; a large Russian producer puts the surplus as high as 1.8 million tons. For the full year, the supply surplus is likely to be much higher: the Russian producer estimates it at 2.5 million tons, with some other market participants or observers going even higher in their forecasts.

This notable surplus is the result of expanded production in conjunction with weak demand. In contrast to production, COVID-19 has had a severe impact on demand. This can be seen especially in the transport sector, which accounts for the highest share of demand (at just under 30%). The sector had been the driver of aluminium demand, but is suffering massively. While the packaging industry benefits slightly from the current situation, its share is rather small at around 12%. Market observers are therefore forecasting global aluminium demand to fall by up to 9% this year, with a revival only expected in the medium term. Yet it might take years until the market is fully recovered.

Against this backdrop, and taking the excess supply situation into account, we find the multi-month high in aluminium prices to be unjustified. Nevertheless, the benign financial markets environment as well as the weaker US dollar seem to be supporting the price, overshadowing the subdued fundamentals. Therefore, we do not expect any noticeable correction.

Source: Commerzbank Research, as of: 19/09/2020

in EUR per unit in EUR per unit
Precious metals Agricultural products
Gold per troy ounce High
Low
1,736.99
1,318.83
Cocoa per mt High
Low
2,403.27
1,605.39
Palladium per troy ounce High
Low
2,610.38
1,434.92
Cotton per pound High
Low
0.64
0.44
Platinum per troy ounce High
Low
933.75
553.36
Maize per mt High
Low
182.00
155.00
Silver per troy ounce High
Low
24.78
11.04
Rapeseed per mt High
Low
421.50
335.50
Sugar per pound High
Low
0.15
0.09
Wheat per mt High
Low
206.25
170.00
Industrial metals Energy
Aluminium per mt High
Low
1,652.25
1,312.45
Brent Crude Oil per barrel
High
Low
62.73
17.83
Copper per mt
High
Low
5,788.18
4,301.93
Coal per mt
High
Low
56.12
34.69
Iron Ore per mt High
Low
108.83
71.09
Diesel per mt High
Low
576.62
164.38
Lead per mt High
Low
2,058.20
1,455.56
Electricity per MWh
High
Low
43.98
15.89
Nickel per mt High
Low
16,301.89
10,051.16
EUA per tonne High
Low
30.47
15.30
Tin per mt High
Low
16,064.60
12,403.50
Gasoil per mt High
Low
579.16
176.28
Zinc per mt High
Low
2,334.62
1,675.89
Jet Fuel per mt High
Low
609.88
115.63

* Source: Bloomberg data, period: 16/09/2019 - 15/09/2020

** From the perspective of German companies, the listed commodities are generally priced in a foreign currency. For this reason, currency risks need to be considered in addition to commodity price risks.