Recently there was a lot of discussion about aluminium shortage and skyrocketing prices. It was caused by many factors, including China trying to be more “green” and economy recovery coupled with a lot of “backlog” - this sector is not only returning to normal, but trying to catch up what it missed during the lockdown. This outcome is logical.

A big question is, will this shortage and increasing prices persist? Not forever, but it is also wrong to assume prices will drop soon and significantly. It will take maybe even years in my opinion for the shortage to resolve, but how prices? Is it possible to return to pre-pandemic levels? Most probably not, they will stay elevated and will slowly continue increasing as demand will be high and supply short for good, but not so much as today.

The biggest news influencing aluminium prices right now in the shortterm was a news about China plan to release of its aluminium (and other metals) reserves and it started speculations about the end of the shortage. Do you think so? Think again…

At first need to see how much they actually plan to release, for what price, for who and why.

Let me get back the to the argument why they want the release. Answer is simple – shortage, although many are of opinion it is a price control technique – well it will have some limited effect only.

As it will be distributed through bidding, as you know there is simply not enough aluminium around so I would not be surprised when prices will get very close to today international market prices. The reason to release reserves is more about the shortage, not price control, in my opinion.

The amount? As of today and what is known to me, there is still not information about the amount, but all reserves they have right now stands at 800,000 tones, which is just 2% of annual domestic (China) needs. And it brings as to question for who? Yes, correct, local market only and it will cover just around maximum of 1-2 weeks of their own local production.

Effect on our local market and international aluminium prices? Well 1 week extra supply just for China and still at elevated prices can't have much effect and absolutely no effect on malaysian aluminium players as for example LBALUM. Yesterday (and today) drop on this counter is just misunderstood knee-jerk reaction.

Aluminum shortage is for real and will stay with us for some time and noone can do anything about it.

Read about LBALUM HERE.

Interested in STEEL?

Read more on my blog: https://miloshtrading.blogspot.com

Disclosure: I am holding LBALUM