Most diversified mining and smelting companies deal with aluminum in their portfolios. Their future valuation will depend on the price of this green transition metal.

Hence, it’s vital to understand what will drive the aluminum market in the coming years.

Bloomberg analysts recently provided a deep dive into the aluminum market. They highlighted three possible scenarios for the metal based on the global economic dynamics.

Base Case

In this case, the aluminum market will be slightly oversupplied up to 2025. It incorporates the steady growth of the Chinese economy and takes account of the halted aluminum smelters in Europe. These smelters went offline when energy prices surged, driving the margins of these plants below zero.

In this base case, we are unlikely to see rising metal prices, which won’t be helpful for mining and smelting companies. But it will be supportive of the clean energy transition.

Cheap aluminum will help reduce the cost of electric vehicles, solar panels, wind turbines, and other clean-energy-related technologies.

And it will create more demand for other critical minerals, such as lithium and cobalt.

Bearish Case

In this scenario, European smelters will come back online, and demand for the metal remains subdued. This will lead to a higher surplus of the metal on the market. As a result, aluminum prices are likely to stay low.

This case will be even more supportive of the clean energy transition than the Base Case.

Bullish Case

Here, analysts expect a metal deficit due to weak supply and rapidly increased demand. At the same time, strict environmental standards may delay the restart of some smelters.

It will likely support the metal’s prices but won’t send these to any all-time highs. This scenario is unlikely to lead to rising inflation. As a result, the impact on the clean energy transition will be limited.

These are three main paths for the metal in the next few years.

The final outcome will depend on…

  • …whether European aluminum smelters will get back online and keep up with the global demand…
  • …whether new aluminum mining projects and smelters will go online…
  • …and whether China announces another round of economic stimulus measures. This will support further construction activity in the country and lift the prices of the commodities used in infrastructure projects.

But even despite some uncertainty, Bloomberg expects the growth of the energy-transition demand for aluminum to remain more or less constant at 4.2% a year through 2040.

It will eclipse the demand growth for traditional use of the metal, which is estimated at 2.1% a year.

Chinese aluminum demand for electric vehicles (EVs) alone is expected to increase by 135% from 2022 to 2025. After all, each EV contains 482 pounds of this metal, and hybrid cars use 518 pounds.

Bottom Line

Aluminum demand is set for growth under all three outlined scenarios, but so is the metal’s supply.

In fact, supply has more room for growth, given the mothballed smelters in Europe. These can come back online on relatively short notice.

The metal is still critical for the clean energy transition, but we would rather focus on other metals with a more bullish outlook. We see more potential in lithium, copper, nickel, and cobalt.

Thank you for your loyal readership,

The Financial Star team