Short Term Commodity Outlook August: Aluminum & Zinc
The market in the metals industry is constantly on the move - and so are raw material prices. This report, which is published monthly by IKB Deutsche Industriebank, focuses on aluminum and zinc and highlights the most important developments in August 2022.
Comments on Aluminum
By the end of June 2022, global primary aluminum production had returned to the prior-year level following the decline at the beginning of the year. While Europe recorded a decline of 11%, the Gulf region and Asia excluding China showed significant increases. After the losses that incurred at the beginning of the year, China now produced 0.5 % more primary aluminum which compensates for the production decreases in Europe due to the war. For 2022, we expect output to reach 67.8 million tons. Added to this will be around 13 million tons of recycled aluminum.
In July 2022, inventories of primary aluminum decreased on both the LME and the SHFE. Aluminum alloy inventories are only at 2,100t. Thus the overall market supply is extremely tight for both primary aluminum and aluminum alloy. Physical aluminum demand on the other hand remains high. Impulses still come from lightweight construction.
Investment demand decreased by around 33% in July. Aluminum prices declined further due to continuing recession fears.
Trend: By the end of Q3 2022, we see primary aluminum prices in a band of +US$700 around the US$2,700/t mark, those of aluminum alloys up to US$500/t lower.
Comments on Zinc
In the first five months of 2022, zinc mine production was 1.7 % lower than in the same period of last year. Until the end of 2022 we forecast a rise of the mine production to around 13.2 mill. tons. Also refining production decreased: The production of refinded zinc was 1,9 % lower than the one from January to May 2021. By December 2022, we see a production of 13.9 mill. tons. The decrease in zinc production is still due to the lower outputs in Europe as a result of high electricity prices. Zinc usage was 1.6 % lower. For 2022 in total, the global usage will be slightly under the level of the previous year. Impulses for the zinc demand will come from China and the rest of Asia. The global zinc market will be balanced in the current year.
Zinc inventories on the LME decreased to 70,500 t. The decline started in the middle of the month; before that there was a slight increase.
Warehouse stocks at SHFE fell to 97,316 tons. The stocks correspond to 4.5 days' consumption, which is very tight.
Trend: We forecast the zinc price to move around US$3,800/t by the end of 2022, with a fluctuation band of +US$700.