Short Term Commodity Outlook February 2023: Aluminum and Zinc

The market in the metals industry is constantly on the move - and so are commodity prices. IKB Deutsche Industriebank publishes a monthly report that focuses on the inventory and prices of aluminium and zinc. The most important developments in February 2023 are highlighted in the current report.

Aluminium developments and forecasts

Global primary aluminium production rose by 2.0 per cent to 68.4 million tonnes in 2022 following production expansions in the second half of the year. China produced more than 40 million tonnes for the first time with an increase of 4.0 per cent.

Declining imports due to the Corona situation and moderate electricity prices as well as new capacities were the drivers. In contrast, high energy prices in Europe caused European production to fall by 12.5 per cent.

For 2023, we forecast an output of around 68 million tonnes of primary aluminium again, plus 13 million tonnes of recycled aluminium. Inventories continued to decline in January on the LME compared to the previous month and stand at just over 407,000 tonnes.

Diagram showing the development of aluminium stocks — Development of aluminium inventories since 2017 in million tonnes.

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Diagram showing the development of the price of aluminium until February 2023 — Development of aluminium prices since 2017 in US dollar per tonne.

Stocks on the SHFE, on the other hand, recovered to CNY (Chinese New Year) at 226,395 tonnes. The Comex warehouses held 17,500 tonnes at the end of January. The supply situation now looks slightly better due to the build-up on the SHFE.

The number of trading contracts increased by 29 percent. Prices for primary and recycled aluminium continued to rise on average in January.

Trend: By the end of Q1 2023, we see primary aluminium prices in a band of plusminus 300 US dollars around the 2,500 US dollars per tonne mark, with aluminium alloy prices averaging around 300 US dollars per tonne lower.

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Zinc developments and forecasts

By the end of November 2022, global zinc mine production had fallen by 2.1 per cent. A decline in production of this magnitude is also expected for the year as a whole.

Refining production was also lower in this period. It was 3.6 per cent below the previous year's level. This is still mainly due to the reduced output of the European zinc smelters as a result of the increased energy prices. Zinc consumption fell by 3.1 per cent by the end of November.

The decline in consumption is in particular due to the fall in Chinese demand in line with the general weakening of Chinese industrial production as a result of the Corona situation.

Diagram showing the development of zinc inventories — Development of zinc inventories since 2017 in thousand tonnes.

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Diagram showing the development of zinc prices — Development of zinc prices since 2017 in US dollar per tonne.

Zinc inventories on the LME continued to fall in January 2023. The stock has fallen by 46 per cent and now stands at just over 17,000 tonnes. Compared to the previous year, this corresponds to a decline of almost 90 per cent.

On the SHFE, on the other hand, there was an increase in zinc stocks, which stood at 44,248 tonnes on 20.01.2023. On the Comex, there are unchanged 3,000 tonnes. The stocks are only sufficient for 1.7 days' consumption.

Trend: We forecast that the zinc price will fluctuate around 3,150 US dollars per tonne by the end of the first quarter of 2023, with a range of plusminus 500 US dollars.