Perfect Storm is Coming in the Aluminum Market!

Emerging Opportunities for Aluminum

Recently, the rises observed in precious metals have drawn attention. In particular, the price of gold has surpassed $4,000 per ounce, silver has reached record levels, and platinum has gained approximately 80% in value since the beginning of the year. However, despite its notable potential, aluminum, which is used in almost every sector, has not attracted sufficient investment interest.

Price and Low Investment Interest

Aluminum has faced a significant surplus in supply over the past two decades. Particularly, China has increased its production capacity thanks to cheap coal-fired plants, leading to a decrease in prices. During this process, aluminum prices increased by 44%, while copper appreciated by more than 160%. This situation has reduced investors' interest in aluminum; the amount of managed funds in WisdomTree's related trading product remains at just $40 million, while the figure for copper exceeds $1 billion.

The Coming Supply Shortage

As China approaches the limits of its aluminum production capacity, the likelihood of the surplus diminishing in the face of rising demand increases. Citi analysts predict that the global aluminum surplus will rapidly shrink by 2026, and by 2027, an annual shortfall of approximately 1.4 million tons will occur. Wood Mackenzie also estimates that a similar shortfall will begin in 2028.

Strong Demand for Aluminum

Aluminum is widely used, particularly in electric vehicles and energy infrastructure. These metals play a critical role in the energy transition process. According to a report by CRU Group, electric vehicles contain an average of 68 kilograms more aluminum, which contributes to increased range. Aluminum, the second most used metal after steel in solar energy, is also being utilized in energy transmission lines.

Expectations for the Future

Rising copper prices may trigger demand for aluminum, while increasing energy costs are limiting supply. Citi analyst Wenyu Yao points out the difficulties in increasing aluminum production capacity. Alone, recycled aluminum may not be sufficient to meet demand. These developments create an excellent opportunity for aluminum and indicate that aluminum could stand out in a new commodity bull cycle.