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Aluminum: China's March Towards 'Net Zero' Flips Market Expectations

Mar. 03, 2021 8:12 AM ETJJU1 Comment


  • Beyond the macro story, aluminium has found some fresh momentum.
  • It's all about China’s ‘net zero’ carbon targets.
  • What are the key implications to supply in China?

China’s ambition to achieve a ‘net zero’ carbon goal is fuelling expectations about dwindling supply growth over the medium- to long-term. Meanwhile, supportive macro drivers, together with a synchronous demand recovery in the short term, are pushing investors to place bullish bets on aluminium, says Wenyu Yao, a Senior Commodities Strategist at ING.

Source: Shutterstock

Beyond the macro story, aluminium has found some fresh momentum

Aluminium has fared well this year, with LME 3M prices gaining over 13% year-to-date. The market seems to have shrugged off stock building in China and is focusing on the positives. Yet, we currently don’t expect a shortage for 2021 as a whole. So what’s behind the recent strong performance?

  1. We discussed some of the macro drivers in a recent note on the commodities bull run, focusing on copper. Aluminium shares the same narrative on future demand from the energy transition. We also briefly touched on the copper-to-aluminium ratio, which hit a record high last week. After the recent macro-driven rally in copper, aluminium looks relatively cheap in comparison.
  2. Aluminium demand has continued to recover from a traumatic year in 2020. In the short term, there are some structural issues in different types of aluminium supply (ingot, billet, scrap) across different regions, and freight rates have helped to push up the regional premium and fuel market optimism.

Meanwhile, unlike copper, aluminium has a major story rooted in its supply-side, which is tied to the global decarbonisation move. This is mainly due to the energy-intensive nature of aluminium smelting. This recent focus is again on China.

We think that the market has found some upside momentum from rising supply risks. The market has long worried that China has been relentlessly building new smelting capacity and supplying the rest of the world with a large amount of

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