Why the volatile price of aluminium matters

Image source, CraftHaus Brewery

Thousands of cans are waiting to be filled at a small brewery in Nevada.

Wyndee Forrest, co- founder of the CraftHaus Brewery, won't earn any money until they are topped up with beer and shipped out to retailers. She says the business was forced to stop selling cans.

She explains that they are sitting on three months of stock as an insurance policy.

She is worried that suppliers will not be able to meet delivery dates because of the turbulence in the aluminum market.

Ms Forrest and her colleagues have had to deal with soaring delivery costs and the price of the containers has risen 18%.

Image source, Getty Images

From door frames to aircraft, aluminum is used in a wide range of products.

The benchmark price for aluminum traded on the London Metal Exchange has dropped in the last two months, but is still more than 70% above its pre-pandemic levels.

During the Pandemic, demand for aluminum fluctuated. Sales of the metal fell at the beginning of the lock-up as workers were forced to stay at home, but then rebounded as many countries exited the lock-up, says Uday Patel, senior research manager at Wood Mackenzie.

There were no more stocks of the metal in warehouses.

The invasion of Ukraine by Russia has tightened supplies and pushed the price higher.

A lot of buyers of aluminum in Europe are self-sanctioning and refusing to touch Russian aluminum if they can, according to Mr. Patel.

The invasion worsened the situation because soaring energy prices were already causing headaches at the facilities.

US firm Alcoa recently decided to shutter one smelting facility in Spain for two years, until 2024, because of what it called excessive energy prices. In the last few months, other smelters have reduced output.

Europe will lose about 900,000 tonnes of primary aluminium production in 2022, according to Mr. Patel.

The head of trading at a metals recycling firm says that aluminum is susceptible to shifts in energy prices.

He says that half of the price of primary aluminum comes from energy costs. Electricity is used to extract the metal from the aluminum oxide, which is mined out of the ground.

It is difficult to overstate the importance of aluminum to the global economy and the production of energy efficient vehicles.

Image source, Dudley's Aluminium

Colin Shorney, managing director at Dudley's Aluminium, a Welsh manufacturer of windows, doors and facades, says he has found himself telling this story.

He tells the news that he has been in the industry for 30 years.

All kinds of buildings, from schools to police stations, have Mr. Shorney's products in them. One major hotel chain is putting an upcoming project on hold because of the rising cost of materials.

Businesses are facing other cost increases that compound the problem of aluminum.

Ms Forrest explained that she used to buy her cans from a supplier in California.

She says it was $300 to ship one pallet of cans.

CraftHaus has switched to ordering cans from a supplier closer to home to try and keep shipping costs manageable.

Image source, CraftHaus Brewery

What is the outlook for the rest of the year? Mr Wildie thinks there will be constraints on the supply of aluminum for some time. Firms that recycle aluminum are filling the gap at the moment, he says. The revenue of the Romco Group increased by 330%.

Demand could potentially cool in the coming months because of the tight global supply. Norsk Hydro, a large Norwegian producer of aluminum that posted record profits in the last quarter, says the outlook is uncertain because of fears of a recession.

The global economy is predicted to slow down, which could reduce demand and production of aluminum on a large scale.

The weather is so bad that almost anyone trying to get hold of this metal is in danger.

I am personally experiencing this, and we are going to put a big sliding door in our extension.

He put the order for the door months in advance, but he doesn't know when it will arrive.

Reflecting on this, and the current hefty cost of construction materials in general, Mr Patel adds, "When these things happen, you start panicking a little bit."