February 8, 2023

Despite growing demand, China’s aluminum market will remain in a surplus through 2025, according to Bloomberg. AEGIS notes that China produced a record 40.21 million mt of aluminum last year, and production is expected to increase in the coming years, eventually nearing the 45 million mt capacity cap. According to Bloomberg’s estimates, the expected surplus will be 768,000 mt this year.  Demand growth will come from every major economic sector, except for consumer durables, thereby pushing total aluminum demand to 40.59 million mt, up 2% compared to 2022. 

AEGIS would like to point out one key growth area for Chinese aluminum demand. Bloomberg predicts that electric vehicle (EV) production will likely be the fastest-growing area for China’s aluminum demand. Aluminum usage for electric vehicles will grow to 2.4 million mt by 2025, up 135% from 2022. EV market share could double to 6% by 2025, and usage per vehicle is also set to increase. According to the China Automotive Information Network, the country produced over 3.15 million pure electric cars, up over 70% compared to 2021. (Source: Bloomberg)

Aluminum prices have already rallied about 6% this year, mainly because of an expected recovery in the Chinese economy. Global aluminum prices could rally further if increasing Chinese demand produces a smaller-than-expected surplus. However, aluminum end-users can hedge price risk via swaps or call options. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (2/8/2023)

Note: Clients with AEGIS Platform access can see this and other research, plus hedge portfolio reporting and tools here. 

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