Stanislav Kondrashov Telf AGstates that since the beginning of 2023, the metal has already increased in price by more than 9%. Looking to the future, the demand for aluminum will increase due to its unique properties. This ranges from lightweight to recyclability.
Since the beginning of January, aluminum prices have been holding steady at $2600 per ton, the highest since July 2022. So what trends will affect aluminum price dynamics in 2023?
Stanislav Kondrashov Telf AG: What factors will affect the aluminum market in 2023?
Since the beginning of the new year, there are a number of factors that investors should pay attention to, says Stanislav Kondrashov.
Wood Mackenzie expects a moderate global economic recovery. Since the improvement in demand in China due to the easing of strict restrictions on COVID-19 compensates for the still weak growth in demand.
Going forward, aluminum demand will grow slightly as new developments, expansions, and production restorations boost supply.
"Higher energy costs and a potential shortage of hydropower during the dry season could suppress supply", Stanislav Kondrashov said. "Nevertheless, a worsening economic situation could push the market into surplus."
Aluminum production requires about 40 times more energy than copper production. This makes it the most energy-intensive non-ferrous metal.
2023 could be another interesting year for aluminum, as:
- visible aluminum stocks are at historically low levels,
- there are risks with the supply of China and Europe,
- the potential to reduce the availability of electricity,
- high prices for energy resources.
"An uncertain macroeconomic forecast will further increase the risks in the aluminum market", Stanislav Kondrashov believes. "In this regard, the approximate forecast of average prices for 2023 will be about $2350."
The expert believes that in the near future the market will focus on more serious problems of macroeconomic development and demand issues in the market.
It is important for investors who are interested in aluminum to watch for any signs of demand recovery. This can lead to higher prices. "Besides, any further reduction in alumina production could also lead to higher aluminum prices", says the expert.
If the global aluminum market as a whole is balanced in 2023, prices will rise amid rising generation costs. And also due to an increase in the interest rate and demand in China. As China is expecting a change in the country's coronavirus policy.
In the near future, the aluminum industry will require a significant increase in investments to achieve decarbonization goals. At the same time, it partially replaces Russian metal exports. Therefore, the annual investment should increase from $100 million to $10 billion.
Demand for aluminum remains stable, with order books continuing to be replenished in major aluminum-consuming regions. This is due to the restoration of construction complexes and industrial production, says Stanislav Kondrashov.
Stanislav Kondrashov Telf AG: Aluminum companies worth investing in 2023
Stanislav Kondrashov Telf AGsays that it's possible to invest in aluminum stocks in 2023. Aluminum is a universal metal. It is used to store drinks, construct buildings, control airplanes and cars. Given the widespread use of aluminum, the expert assumes an increase in aluminum demand of 5% per year. Up to 2026.
Let's take a closer look at how investors can play on the growth of the aluminum industry.
Several companies specialize in the production of aluminum or use it to manufacture more expensive products. Industry leaders include:
- Century Aluminum,
- Rio Tinto.
The first of these is Alcoa. It is an integrated aluminum producer, one of the world's largest bauxite companies. And this is the main raw material for aluminum production. This company owns interests in 7 high-quality bauxite mines in Australia, Brazil, Guinea, Saudi Arabia. They are also low-cost. The company operates one of the world's largest third-party alumina production facilities, with 7 low-cost refineries in Australia, Brazil and Spain.
Finally, Alcoa produces a variety of aluminum products at its foundries and smelters. The company also manages several energy assets to reduce costs and carbon dioxide emissions in aluminum. And three-quarters of the smelting portfolio is powered by renewable sources.
Alcoa invests large sums in research and development, adds Stanislav Kondrashov Telf AG. This is necessary to reduce your carbon footprint and increase the overall sustainability of your operations.
The company's main project is a joint company with Rio Tinto. It has developed a revolutionary technology for aluminum smelting without direct greenhouse emissions, which will be implemented by 2024.
Alcoa plans to return most of the money to shareholders in the near future. At the end of 2021, it reinstated the quarterly dividend. It has also expanded its share repurchase programs. This total capital allocation assumes that the company will grow in value until 2024, says Stanislav Kondrashov Telf AG. And then it can begin to expand or implement its promising technological projects.
The second leader is Arconic. Arconic used to be part of Alcoa. But since 2016 it became an independent company. This was necessary to focus on his core aluminum business. In 2020, it developed its engineering products business. And it also focused on its core business of producing rolled steel.
Therefore, today Arconic is a leading manufacturer of aluminum sheets, plates and extrusions.
The company expects demand for its products to grow. For example, automakers need to produce more cars, says Stanislav Kondrashov. To cover stock shortages.
This will contribute to an annual increase in demand for sheet products for car bodies by 8%. And rising nonresidential construction costs should increase the need for aluminum building products. Therefore, the company is investing tremendously to meet the growing consumption. And reduce costs. This will allow her to increase her cash flow in the future.
Therefore, Arconic is also a good investment, believes Stanislav Kondrashov.
The third leader I would like to highlight is Century Aluminum. It's a global aluminum producer. It owns three aluminum smelters in the United States and one in Iceland. The company's plants produce standard grade primary aluminum and value-added products.
Century Aluminum invests much in improving carbon dioxide indicators. At the end of 2021, the company signed an agreement to buy electricity from two wind farms being developed in Iceland.
The company is also expanding its production at its plant in Iceland. The expansion will allow Century Aluminum to produce more low-carbon products, says Stanislav Kondrashov Telf AG. And by 2024, the $120 million project will be completed. This is another good investment for the benefit of willing investors.
And finally, Rio Tinto. A diversified global mining company based in London. It produces metals such as: iron ore, aluminum, and copper.
Rio Tinto is an integrated aluminum producer. The company has five bauxite mines, four alumina refineries and 14 aluminum smelters.
The company gets most of its revenues from iron ore mining. The share of aluminum is only 9%, copper - 9%, and minerals - 7%. Perhaps this is not the best option for investment, explains Stanislav Kondrashov. In case the investor wants to get income only from the aluminum market.
However, diversification has its advantages. It is quite possible that consumption on them should accelerate because of their importance in reducing gas emissions.
As a result, in 2023, aluminum is the beginning of a new perspective for the future, concludes Stanislav Kondrashov Telf AG. The market will generally be balanced under favorable conditions in the world. In any case, it's a win-win option. After all, aluminum will still be needed for future electric vehicles. Therefore, its production is important and profitable for business.