The world aluminium market is abuzz with optimism once again as futures of the metal on the London Metal Exchange inched higher to USD 2,460 per tonne today from a bottom of USD 2,166 per tonne in April. The hike comes against the backdrop of expectations of top-level trade talks between China and the US being held in London, and it is a sign that even a slight de-escalation in trade war tensions can have ripples of optimism sweep through commodity markets.
The aluminium industry has been witnessing for months the turbulent geopolitical tensions, the most significant being trade wars between the two biggest economies of the world. Past reciprocal tariff hikes and accusations of violations of trade accords have created enormous uncertainty, supporting price volatility as much as world supply chains' disruption. But the latest session after a recent phone call between Chinese President Xi Jinping and President Trump has triggered hopes of a freer trading environment.
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What does this gain mean?
Gain in aluminium futures highlights the metal's inbuilt vulnerability to macro-economic and geopolitical vagaries. The metal fundamental to all manner of construction and automobile manufacturing to electronics and packaging is especially vulnerable to changes in global demand and supply dynamics caused by trade policy.
Any ease of US-China tariffs and non-tariff barriers would signal a possible rise in cross-border trade. Such sentiment-based rise is a sign that the market is pricing in smoother trade flows and steadier market conditions that would directly benefit producers and consumers both by lowering costs and boosting efficiency.
While the recent rebound is symptomatic of short-term optimism in the market, prudence is advised by analysts. The current US-China trade relationship has been one of shocks and fluctuations, and thorny issues like China's monopoly of rare earth exports and US curbs on high-tech goods remain on the table. Any collapse of these talks can easily erase the recent optimism, underlining the volatility of commodity markets sensitive to geopolitical factors.
Analysts and the traders will be watching every word and move from the forthcoming talks, with the destiny of aluminium prices, and the dynamism of the world's industrial landscape, hanging in the balance.
Also read: Aluminium premiums in east China continue to narrow, with market focused on cargo shipments
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