Aluminum prices have increased by 60% in the past 1 year. (Source: Nikkei Asia)

Currently, aluminum is widely used in everyday life, from car parts, food and beverage cans to electrical components.

A short-term push for the world to decarbonise will lead to soaring commodity prices, as manufacturers look for alternative ways to generate the green energy needed for production.

As economies are slowly recovering from the COVID-19 shock, aluminum demand is picking up again, especially from China, which accounts for 60% of global consumption.

However, aluminum production from China has been affected by drought and high thermal coal prices. Another factor is that hydroelectric and thermal power plants are having a hard time increasing electricity output due to President Xi Jinping’s emission reduction target.

Xi Jinping expects China’s emissions to fall sharply by 2030 and reach carbon neutrality by 2060.

Currently, aluminum production accounts for about 4% of China’s total carbon emissions. Restrictions on aluminum, steel and cement production are expected to curb emissions.

Beijing authorities have said they want to limit the annual production capacity of the industry and factories to reduce emissions, and switch to secondary aluminum production or recycling.

One of the challenges facing the aluminum industry is rising energy prices. In the past, aluminum smelters moved to Yunnan province, where hydroelectric plants enjoy preferential rates.

Currently, however, the Chinese government discourages many industrial producers from coming to the province, and fewer and fewer smelters benefit from electricity prices.

In addition, other large power consuming industries such as silicon and magnesium manufacturers are also expanding, adding to the risk of blackouts.

“Obviously, this will increase production costs for the furnaces and manifest directly in product prices,” said Uday Patel, an analyst at energy group Wood Mackenzie.

Fluctuations in the world impact aluminum prices

In addition to the factors coming from the Chinese giant, political fluctuations in countries around the world also have a strong impact on aluminum prices.

According to Nikkei Asia, on September 5, a coup occurred in Guinea, which has the world’s largest bauxite reserves and is also the main bauxite supplier to China.

Global aluminum demand is expected to gradually increase in a “green” trend. Automakers will use more aluminum to build lighter cars to save fuel, while the energy industry will also need more aluminum wires to build offshore wind power stations.

“The point here is that the aluminum industry isn’t always green and clean,” says Patel. “However, countries still need aluminum to move towards their goal of decarbonizing their economies.”

Amid recent strong aluminum prices, traders said Japanese customers and Australian producers are discussing a premium of around $230/ton for the fourth quarter, the highest. in the last 6-7 years on the London floor.