COVID19 outbreak fuelling the worldwide aluminium slow demand: Bloomberg Intelligence suggests

The downfall in the aluminium industry could be traced back to the global financial crisis last year that forced many automobile companies and the construction projects to reduce or shut operations, resulting in demand crunch for the lightweight metal, according to Bloomberg observation. The outbreak of COVID19 has just further triggered the ailing of aluminium demand, leading to production curtails at many downstream and end-use aluminium plants.

COVID19 outbreak fuelling the worldwide aluminium slow demand: Bloomberg Intelligence suggests

Bloomberg Intelligence suggests that since the demand was slowing down, a surplus in stocks was well expected this year, even before the current pandemic. The price has been declining as well, which is now below $1500 per tonne, making most of the world’s production unprofitable. According to Bloomberg, the industry is currently working through the stockpile accumulated during the last crisis.

Bloomberg believes the scale and speed of the demand drop triggered by the coronavirus outbreak will test the industry’s elasticity. Aircraft makers are considering production cuts, while automakers have shut many of their plants from Japan to Germany as car sales have dropped by about 80 per cent. The premium paid by Japanese buyers over the London Metal Exchange price has also come to the lowest in the last three years’ time. But the demand from other sources like machinery and canned food is accounting for a small fraction of the aluminium usage.

Analysts from BMO LLC estimate that the worldwide primary aluminium demand in late March dropped 6 per cent from the same period last year.

According to them, China would not be able to help much to soften the blow this year, even though cheap Chinese metal had flooded the market during global financial crisis last year. In 2009, when consumption dropped 17% outside China, it rose 15% inside the country, according to a Boston Consulting Group report. This time, even Chinese appetite could take years to recover fully.

BMO forecasts that there could be 4.2 million tonnes per year of idled capacity by the third quarter of the year and 10 million tonnes by 2025. However, it is still unknown how long the downturn will last and how it will affect the demand in the future.

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