Steady metal

CW looks at the reasons behind the fluctuations in aluminium's pricing

An increase in construction in Europe and the US would impact aluminium pricing, say analysts.
An increase in construction in Europe and the US would impact aluminium pricing, say analysts.

Strong, durable, corrosion resistant and recyclable, it is no surprise that aluminium continues to be a metal of choice within today’s building industry.

For more than 50 years, it has been particularly useful for windows, doors, roofing and curtain walling, and is becoming increasingly more popular during the construction of large-scale and prestigious projects.

But as the pressure to cut costs increases, industry players have been forced to keep a close watch on the metal’s volatile pricing structure. Peaking at an expensive US $3,000 per tonne during the boom years, it has since fallen to record-low prices following the recession, affecting overall project costs and potentially the region’s producers’ ability to make a profit.

This quarter, standing at US $2,100 per tonne at the time of writing, it seems that the price of aluminium has increased once again, having fallen from a sudden high of US$ 2,380 in April – shocking analysts – to US $1,390 per tonne in June. The fluctuations are clearly a talking point for experts and those affected.

“Aluminium prices over the last few months have been volatile, they’ve moved up and down,” says aluminium analyst from the CRU group Marco Georgiou.

“This is predominantly because of macro-uncertainty within the market. Concerns about Chinese inflation and whether the US was heading for a double-dip recession, for example, has meant investors have been dipping in and out of the market depending on the information they have received.
 

The reality is that demand is actually quite strong at the moment. Growth rates have slipped back in the last month or so due to seasonal changes, but on the whole, they’re quite good.”

Thus, the price of aluminium is affected by a number of factors, and at the moment, it would seem that demand in construction is having less of an impact than some other influences.

Demand will continue to have some effect on price during the post-recession period, but according to Georgiou, this is likely to be marginal unless we see some drastic change in construction output. “Construction is an important end-use market for aluminium,” he explains.

“But whilst in areas such as China, construction tends to be quite strong, in regions like Europe and the US, it is still quite weak. Of course, if it were to suddenly pick up in these regions it would have a visible and positive impact on the price of aluminium.”

Gulf Extrusions sales manager Mechur Jaychandran agrees with Georgiou’s assessment. He believes that, aside from the sharp fall in demand at the end of 2008 and beginning of 2009, demand in the construction industry has had little effect on the price of aluminium recently.

“The change in prices this year is not because of a change in demand, there may be some other reason,” he says.

The price of oil has been pinpointed as having a major influence on how much contractors pay for the world’s second most-used metal, after steel.
 

According to Georgiou, this is due to the high costs associated with manufacturing it. “When oil prices go up or down,” he says, “it has a huge impact on the cost of aluminium because power is one of the two largest cost components, the other being alumina.”

When asked whether he thinks that oil and thus aluminium prices will be affected by the commissioning of Iran’s first nuclear power plant, as speculated by other experts, he is unable to give a definite answer.

Perhaps a bigger concern is the effect of China’s decision to pull back aluminium production to save energy. This is particularly important to the Middle East – a region pushing forward with plans to maintain its status as a major aluminium production hub.

Should China reduce the amount of aluminium it produces, this is likely to have an impact on the metal price, and thus an effect on the revenue incurred from the GCC production market.

“It could have some impact, but nothing significant, as the Chinese market is still in surplus,” explains Georgiou.

Separately, albeit still topical, he makes clear how China’s policy of supplying to domestic buyers, combined with the Middle Eastern tradition of exporting to South East Asian and European markets rather than the Chinese, means China and the GCC are also rarely in direct competition when it comes to production.

Thus, in truth, it appears that while the price of aluminium has remained fairly steady, the main influence on costings has been macro-uncertainty. Looking ahead, the question on everybody’s lips is: what does the future hold for the aluminum industry? Do we expect prices to go up again, remain steady, or drop to the low levels witnessed before the recession? And why might this be?

“I think the price of aluminium as a raw material will go down in the coming months because demand will not increase in the GCC and it will stabilise in other parts of the world,” says Tawil. “After a few years we expect prices to reach the lower levels seen in 2006 and 2007.”

Meanwhile, Jaychandran believes prices will remain fairly steady, and that the prospect of a recovery in the construction industry (in turn, increasing the price of the popular metal) is highly unlikely.

“Over the next few years, we don’t anticipate any increase in the demand for aluminium in construction because we don’t think the number of projects will ever get back to 2007 and 2008 levels. Companies can still make money from aluminium, however, by investing in the packaging industries.”

Why is aluminium so useful in construction?

  • Aluminium can be recycled efficiently and cheaply so as to reduce waste and save energy.
  • Aluminium has a high strength-to-weight ratio, and a density of 2.7 – one third the density of steel.
  • Aluminium is a conductor of heat and electricity, making it particularly useful in specialised projects.
  • Aluminium is strong, durable and resistant to corrosion, rendering it a key building material.

 

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