Aluminum prices experienced a 4.7% month-on-month decrease in the month of January, followed by another 1.9% decrease during the first half of February. Despite these declines, prices remained in a long-term sideways range.
Impact of the closing of the New Madrid smelter
The closure of the New Madrid smelter in Missouri has raised concerns in the U.S. aluminum market. This smelter, the second largest in the U.S., accounted for approximately 30% of domestic primary aluminum production. Although the closure initially triggered a 6% increase in Midwest Premium, this quickly receded.
Owner Magnitude 7 Metals, attributed the closure“to high energy prices and robust production from China.” Although tariffs limit Chinese aluminum’s access to certain markets, its production affects the global balance of supply and demand, influencing international prices.
World production and Chinese market performance
Aluminum production in China has steadily increased, setting monthly records during 2023. Although it was expected that the dry season in China’s Yunnan province might reduce production, this has not happened. On the other hand, production has continued to increase, although slightly below historical highs.
U.S. demand appears weak, reflected in the decline in aluminum shipments reported by Alcoain 2023. Although there was a slight uptick in the fourth quarter, the company does not anticipate drastic changes in the market in 2024, with consistent global shipments, relative to the previous year.
Effect on aluminum prices and future projections
The owner of MP indicates plans to restart the smelter in the future. However, the market seems to temporarily ignore this loss, focusing its attention on U.S. demand and Asian production. This is due to the correlation between Midwest Premium and LME prices. Because they suggest that U.S. demand is an important factor in market direction.
The correlation between Midwest Premium and LME prices has increased in recent years, indicating the growing influence of supply and demand in the market. As long as Midwest Premium remains consolidated, prices are likely to maintain a similar trend until demand undergoes a significant change. Chinese production still has the potential to disrupt the market balance.
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Source: oilprice.com
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