Aluminium scarcity in Europe will further erode 17-year low LME stocks

Aluminium supplies to Europe to fill the scarcity in the region will further lower the aluminium inventories in LME-approved warehouses over the coming days and weeks from its current 17-year low.

Citi analyst Max Layton has analysed and noted that aluminium supply will continue to remain weak in Europe as nearly 1.5 million to 2 million tonnes of output are at the risk of closure over the next three to twelve months.

Record high power prices in Europe are continuously lifting the production costs of aluminium, resulting in output curtailments and shutdown. Western Europe accounts for about 10 per cent of global consumption estimated around 70 million tonnes this year.

 Aluminium shortage in Europe has resulted in large draws on LME aluminium stocks, which have already fallen by 72 per cent since March 2021 to 532,000 tonnes, the lowest since November 2005. More worrying is the on-warrant stocks on LME at about 260,075 tonnes, the lowest on record and likely to fall further.

ING analyst Wenyu Yao pointed out, “Aluminium continued its rally from last Friday after on-warrant stocks dropped to a record low, reflecting tightness in the ex-China market.”

Benchmark aluminium price on the LME earlier hit a one-week high of $2,865 a tonne. Worries about the availability of aluminium stocks on LME have also narrowed the discount price over the three-month aluminium contract to $26.5 a tonne from $36 a week ago.

The physical market duty-paid premium that European consumers pay over the benchmark LME is currently trading all-time high at $615 per tonne.