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Demand sees aluminum price hike but China has plans to help them fall

There's a major global raw material shortage, which has led to considerable commodity price increases. And it doesn’t look like there is an end in sight yet.

The economic cycle has a powerful effect on commodity prices and with supply relatively fixed in the short term, an unexpected shift in demand can cause sharp moves in commodity prices. And global demand has come back with a bang. Therefore, the fact that prices collapsed last year and have soared this year, is not surprising.

ABN AMRO recently reported that steel prices had already risen this year by some 15%, whilst aluminum is already 16% pricier. 

The London Metal Exchange three-month aluminum price surged to above $2,560 per tonne in early July. This has not been since July 2011. This is down to tight supply and continued demand from the automotive, packaging and construction sectors. 

Another hurdle facing manufacturers is Russia’s plans for new export taxes for steel products, nickel, aluminum and copper, which will cost their producers around $2.3 billion. Along with a production curb in China's top-producing province of Yunnan, it does not seem that prices will fall anytime soon.

One positive to take away is news that China has stepped up its crusade to rein in commodity prices in order to ease the threat to its pandemic rebound from rising raw material costs.

This crusade includes ordering state-owned enterprises to control risks and limit their exposure to overseas commodities markets by the State-owned Assets Supervision and Administration Commission. Companies have also been asked to report their futures positions for Sasac to review, according to an insider who wished to stay confidential.

“We haven’t seen the country release state reserves for years,” said Jia Zheng, a commodity trader with Shanghai Dongwu Jiuying Investment Management Co. “This will boost short-term supply, sending a bearish signal to the market.”

 Many supply problems seem likely to be overcome. China is at a very different stage of its development today than it was 20 years ago.

As always, the TyTek team will keep you advised about commodity prices. If you have any questions, please don’t hesitate to contact us.

Source:

Aljazeera

Trading Economics

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