World Aluminium Outlook amid COVID19: Production to grow at a CAGR 3% during 2020-21

Not even a month or two went by this year, the aluminium industry started facing a brand new challenge in the form of COVID19, followed by some of the severe impacts at its prices, demand, and consumption in the year last due to the US-China trade tensions, US aluminium import tariffs, and the world economic slowdown. The London Metal Exchange spot price for aluminium in 2019 had fallen by 17 per cent to average US$1,830 per tonne, and that of the free on board (FOB) Australian alumina price declined to US$342 per tonne, driven by rising supply with the return of Brazil’s Alunorte refinery to full production. In 2020 and 201, the LME aluminium spot price is forecast to decrease further, but slower than the year last, by around 7 per cent, approximately ranging between US$1,698 per tonne and US$1,582 per tonne.

Outlook for 2020 & 2021

The estimated fall in prices in the next two years reflects the combination of growing aluminium production and weaker aluminium consumption. The production over the outlook period is projected to increase at an annual average rate of nearly 3 per cent, while consumption to decrease at an average rate of 1 per cent to 1.5 per cent a year.

So, during 2020-21, the aluminium production is estimated to hover between 65 million tonnes (approx.) and 67 million tonnes (approx.), in contrast to the consumption ranging between 60 million tonnes and 62 million tonnes (approx.). As a consequence, build-up of aluminium stocks is expected in the short term.

The COVID19 outbreak is expected to reduce the aluminium demand in China, which accounts for 57 per cent of the global aluminium consumption, by 2.5 per cent in 2020.

Adding further pressure to aluminium prices is the impact of falling input costs, with alumina prices forecast to continue declining through the outlook period. The Australian FOB alumina price is forecast to hover at around US$320 per tonne and US$300 per tonne in 2020 and 2021.

Slowing demand growth from the world automotive sector may also aggravate the impact on global aluminium demand and prices in 2020 and 2021.

Outlook for post 2021

After 2021, the LME aluminium spot price is projected to rise at an annual rate of 1 per cent to average between US$1,640 per tonne and US$ 1,645 per tonne (approx.) in 2025, backed on the recovery of Chinese aluminium consumption.

Global aluminium consumption is forecast to grow at an annual rate of nearly 4 per cent between 2022 and 2025 to reach over 71 million tonnes, amidst the rising demand rate of 1 per cent to 1.5 per cent in 2020 and 2021. During 2022 -2025, the consumption is estimated to grow from around 65 million tonnes to close to 72 million tonnes.

Production of the primary metal is also projected to record a hike of 2 per cent a year between 2022 and 2025, amounting to 71 million tonnes (approx.). Additional capacity in China, Iran and Indonesia is likely to be the cause for the gain in production. In China, more Greenfield aluminium smelters are anticipated, located in regions such as Yunnan province where power is cheap and abundant. Outside of China, Iran is implementing a plan to increase its annual aluminium production to 1.5 million tonnes by 2025.

The Australian alumina FOB price is projected to marginally drop through 2025 to average at US$308 per tonne, led by the estimated growth in world alumina production by almost 2 per cent. World alumina consumption is likely to rise as well to reach more than 125 million tonnes by 2025.

World bauxite consumption is projected to grow at an average annual rate of nearly 2 per cent over the next five years, reaching close to 338 million tonnes by 2025, primarily driven by new alumina capacity in China and Indonesia. The production of the raw material is projected to grow to almost 376 million tonnes by 2025. The gains are expected to be driven by newly added capacity in Australia and Guinea, where production is rising rapidly. The Compagnie des Bauxites de Guinée (CBG) mine in Guinea, which expanded from 13 to 18 million tonnes per annum in 2019, is due to expand to 28 million tonnes per annum by 2022.