Why are aluminum prices rising in 2022, and what does it mean for the wire and cable industry?
What is Happening With Aluminum Prices?
The prices are currently at their highest since 2008-2011. In March, the price reached 3,849 USD per metric ton. In large part, this is driven by China, the largest supplier of aluminum in the world, but other factors include the Russian-Ukrainian war and the role of aluminum in the rising green market. The demand for aluminum is growing globally, while China is experiencing a supply shortage.
Shipping delays cause an additional shortage of aluminum supply in the United States. The 2021 US Infrastructure Investment and Jobs Act which boosts the local demand for aluminum, also impacts the price of this critical material for building infrastructure. The inventories in the United States are not what they were just a couple of years ago, while the stockpiles are record high. There are several critical reasons for the current state of the aluminum market that affect growing prices the most. Let's focus on these factors more precisely.
What Are The Factors Affecting Growing Aluminum Prices?
Production Cuts in China
The production cuts in China are the consequence of the country's new environmental legislation that opts to cut the country's carbon emissions significantly. Why is this so critical? The fact is that China produces over 50 percent of the world's aluminum. Therefore, it dictates most trends in the metal's world market. From time to time, other factors impact the country's supply chain, including natural disasters like droughts.
Russian Invasion Of Ukraine
On February 24th, Russia started a full-scale attack on Ukraine, beginning the largest war on the European continent since WW2.
Though no way as influential as China, Russia is a noticeable player in the aluminum market, supplying between 6 and 12 percent of the world's aluminum stock depending on the year. Sanctions on the Russian aluminum market imposed because of the war cut Russian supplies short, further affecting the already stagnating market. Commodial prices of the metal had gone up even before the invasion since December 2021, when the fears of the upcoming war made their way into the Western media reports and the rhetorics of the governments across the world.
Since Russia is further escalating the war, the lack of supply from the country will likely have a negative outcome on the aluminum market for years to come.
Rising Energy Prices
The price of aluminum is directly affected by surging energy prices in the United States and Europe. Aluminum producers are among the top energy consumers globally because the metal requires a lot of energy in its creation process. About 50 percent of aluminum smelting costs are actually the energy cost, which is about a 10 percent increase in recent years.
Energy prices in Europe went up in recent years partly due to weather fluctuations. They will definitely rise even further due to the Russian War in Ukraine, the factor discussed above. The sanctions put limitations on the large Russian oil and gas market, with many countries discussing the probability of an embargo on the Russian energy market.
Additional Factors Affecting Supply-Demand Chain
- The 2021 military coup in Guinea, one of China's largest suppliers of raw materials for aluminum manufacturing.
- Growing global demand due to the involvement of aluminum in green production, f.e. the manufacturing of lighter vehicles.
- A lasting impact of the COVID-19 pandemic on the supply chain.
- Closing down of gigantic bauxite refinery in Jamaica in 2021 due to fire devastation.
- Additional shortage of raw materials, such as bauxite.
The Outlook For The Wire And Cable Industry
The current price increase is a consequence of several factors, many of which will develop further and are not likely to go anywhere. Everything points to aluminum prices staying elevated for an extended time as the supply cannot catch up with the growing demand.
The rise in aluminum prices will not lead to a shortage in aluminum cables in the United States, but we expect the prices to go 2-3 times higher.
This does mean a lot for the wire and cable industry, as aluminum is a staple in the industry, an excellent conductor that serves as a cheaper alternative to copper. The wire and cable industry relies entirely on those two metals, and there is simply no way to replace aluminum with cheaper metal. However, the customers can take advantage of decreasing the gap between the prices of copper and aluminum cables. Before 2022, aluminum cables were 5-6 times cheaper than copper ones.
Surprisingly, copper prices took a U-turn in 2022 and fell heavily because of the growing supply and the recovery of the supply-demand chain after the COVID-19 pandemic. Therefore, if your main reason for choosing aluminum cable was the price, you can now consider copper cables as a suitable option because the price difference is no longer that dramatic.
