Short Term Commodity Outlook October: 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 October 2022.
Comments on Aluminum
Global primary aluminum production at the end of August 2022 was 0.9% higher than a year earlier. China stood out with an increase of 1.8%, while Western Europe and the USA recorded declines. Due to high energy costs, there have been capacity adjustments in Europe in recent weeks. For 2022, we continue to assume an output of 67.8 million tons. Added to this will be around 13 million tons of recycled aluminum.
Aluminum use in the main customer sectors continues to develop positively. Despite weaker car production, a further increase is expected in the current year compared with 2021. While inventories of primary aluminum increased at low levels on the LME in September, they decreased on the SHFE to 175,000 tons.
The Comex warehouses hold only just under 20,000 t. However, this means that there is still only a very tight supply. There are also growing concerns about possible shortages and market bottlenecks if there are partial shutdowns of primary production in Western Europe. Investment demand decreased by around 12% in September.We therefore expect aluminum prices to recover further in the coming months.
Trend: Until the end of 2022, we see primary aluminum prices in a band of ± US$500 around the US$2,400/t mark, with aluminum alloy prices up to US$500/t lower.
Comments on Zinc
From January to July 2022 the zinc mine production was 1.6 % lower than in the same period of the previous year. Refining production decreased by 2.3 %. This was due to reduced activity by European producers as a result of the enormous rise in energy prices. Zinc consumption was 3.6 % lower. For the full year, zinc consumption is expected to be slightly lower than a year earlier. Stimulus will come mainly from China and the Asian region. In the medium term, we expect a strong recovery for the zinc demand: The usage will equal 14.4 million tons in 2025.To fullfil this needs, a further increase in zinc recycling is necessary. In 2022, the zinc market will show a small surplus after closing with a deficit of 213,000 tons in 2021.
Zinc inventories on the LME decreased to 53,600 t; those on the SHFE decreased further to 37,700 t. The volumes of 3,000 t on the Comex are negligible. Stocks now correspond to only 2.5 days' consumption. Zinc supply therefore is very thight and it exists a risk for high price volatility.
Trend: For the zinc price, we see a movement of ± US$700 at a level of 3,500 US $/t.