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Global aluminum production could increase by 2% to 70 million mt in 2023, due to smelter restarts and the commissioning of new projects, according to Bloomberg Intelligence. Based on their calculations, this will swing the market into a surplus of approximately 0.4 million mt in 2023, compared to an expected deficit of 0.2 million mt this year. This could weigh on LME aluminum prices next year, as market participants polled in a Bloomberg survey estimate prices will average $3,062.50/mt, down from this year’s estimate of $3,328/mt. However, rising demand from the electric vehicle sector could push prices back to $3,300/mt in 2024. |
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Aluminum prices at the LME were down nearly 30% in 2Q, and hovering near unchanged in July. End-users such as automobile manufacturers might consider using the recent dip in prices by applying simple hedges involving swaps and call options. One other possible strategy is a costless collar. In this case, a “zero-cost collar” creates a maximum and minimum aluminum price for an automobile producer, as they would simultaneously buy a call option (creating a cap, or maximum) and sell a put option (creating a floor, or minimum). The call and put premiums offset, making the construction costless. It is popular because of the upside price protection, but you sacrifice access to much lower prices if prices should fall. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (7/8/2022) |
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Note: Clients with AEGIS Platform access can see this and other research, plus hedge portfolio reporting and tools here. |
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AEGIS Insights |
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07/07/2022: Have Copper Prices Begun to Find a Bottom? 07/06/2022: AEGIS Factor Matrices: Most important variables affecting metals prices 06/23/2022: What is Green Steel Anyways? |
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| Important Headlines | ||
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7/5/2022: Copper price lowest since November 2020 on economic slowdown worries 7/5/2022: Euro slides to 20-year low against the dollar as recession fears build 7/5/2022: Russia's Potanin weighs $60 billion metals merger as defence against sanctions 7/4/2022: Metals melt down as recession fears overwhelm supply woes 7/4/2022: Iron ore price tumbles as China’s demand outlook darkens |
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Important Disclosure: Indicative prices are provided for information purposes only, and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as “edge,” “advantage,” “opportunity,” “believe” or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.
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