Aluminum and Copper: The Past Weeks and Future Supply Concerns

In the last couple of weeks, there have continued to be large fluctuations in the price of copper. A new top was reached on the 21st of February, when the price was 4.23 USD/Lbs, up from lower levels in the prior two weeks. However, a steep decline followed, and on the 24th, the price was 3.95, a level not seen since early January. However, it has since recovered to 4.17 on the 1st of March and landed on 4.08 before the weekend. 

Aluminum and Copper prices since 01.01.2023. Source: Trading Economics 

In 2023 aluminum peaked at 2658 in late January, followed by a decline, reaching a bottom of 2335 on the 24th of February. Since then, the trend has been identical to copper; a new peak on the 1st of March before a smaller drop, landing at 2402 before the weekend. 

During the past year, copper has been quite volatile. Starting 2022 at 4,52 USD/lb, reaching a high of 4,89 in March and a low of 3,21 in July. Copper has climbed up to the annual peak of 4,26 in late January.  

Graph of Aluminum and Copper prices since 01.01.2022. Source: Trading Economics 

The peak in March has largely been attributed to a widening gap in supply and demand following the pandemic, as pointed out by Pistilli. Much of the price uncertainty today is also associated with the demand from a reopened China. But the relaxation of Zero Covid and support of a struggling property sector has resulted in a slight increase in construction visible in China's manufacturing purchasing managers index (PMI). 

On the supply side, copper continues to be influenced by few new discoveries and a decline in head grade copper, the grade of ore required by mills. An increase in scrap availability in China has led to an oversupply. However, copper supply is tighter outside the Chinese market as major maintenance outages at key smelters occur in the US, South Korea, and Indonesia. 

Supply issues from mines in Peru have been affecting the outlook as well. Protests and blockades of a critical mining highway for Glencore and Las Bambas, a subsidiary of Chinese MMG, seems to have decreased production and affected mining activity significantly in recent weeks. However, the blockade has temporarily lifted because of the regionally important holiday, the Carnival period. It is uncertain what will happen to the protests looking forward.   

Anti-government protestors block a road demanding in Condoroma in Cusco region, Peru February 4, 2023. REUTERS/Pilar Olivares. 

Aluminum has not had the same price volatility as copper in the previous year. However, as with copper, aluminum peaked in March at 3.849 USD/t, following the same downward trend, with the bottom reaching 2.114 in September. 

The electricity price has affected the supply of aluminum. In addition, several producers announced reduced production in 2022 due to the high gas prices in Europe. Norsk Hydro was one of the producers that temporarily stopped their production at two Norwegian and one Slovakian site, as Dudman for Fastmarkets reported. 

The financial officer Pål Killemo stated in an interview that they need more than the lower gas prices to start the smelters in Norway back up. Furthermore, they are waiting for a more robust demand to materialize. This is unlike the French producer Dunkerque, one of Europe's largest smelters, which is relaunching some of the previous capacity with support from the French government for energy-intensive industries. 

As for copper, much of the uncertainty for the metal is connected to the demand from a reopened Chinese market. However, production is seemingly not as tight for aluminum, as producers are ready and able to start up when they deem demand is there.