The international aluminum price has not taken the usual path. Since reaching a price high of 3,975 US dollars in March, it has been falling all the way. Aluminium futures on COMEX were quoted as low as $2,428 as of Tuesday's close.

However, it is very strange that global aluminum supply is continuing to tighten, and aluminum prices should have been supported. But the reality is that, like most metals markets, demand destruction dominates the market logic and prices are powerless to turn around.

Costs have risen sharply

Europe is in the midst of an unprecedented energy crisis, with gas supply worries intensifying and electricity prices soaring.

According to the data, the European natural gas forward prices due in 2023 and 2024 have reached 134 euros and 82 euros, which is a huge gap compared with the stability of less than 40 euros in the previous ten years.

From this point of view, the trend of the transmission of natural gas prices in Europe to the rising cost of electricity will continue until 2024, which is undoubtedly a huge blow to the metal smelting industry, which is very dependent on electricity.

It is reported that some aluminum smelters and alumina refineries have been partially or completely closed due to rising electricity prices, making the supply of aluminum-related products full of risks.

Not only Europe, but the United States is also suffering from high electricity prices.

Last week, Alcoa warned that soaring global costs would render as much as 20% of its aluminum capacity unprofitable, and expected a strong recovery in prices only in 2023.

In addition to electricity prices, China's related production capacity is still unstable due to the impact of the epidemic, and the international attitude towards Russian aluminum products is shunning, all of which are exacerbating the problem of tight supply.

The demand side is destroyed

Cost is only one of the reasons for the fall in aluminum prices. The other two come from a strong dollar and Chinese demand.

China is the largest consumer of aluminum. Due to the epidemic, downstream industries of aluminum products have been cautious, which has also led to the continued sluggish demand for aluminum products from the outside world, which also provides a catalyst for demand destruction.

What's more tricky is that the world has entered a period of interest rate hikes, which has also driven the dollar to continue to strengthen. A strong dollar, on the other hand, usually has a negative correlation with commodity prices.

In addition, the increase in interest rates has also weakened the profits of the aluminum trade. In the metals market, many traders buy metals in the form of borrowing, and rising interest rates increase the debt burden. This is undoubtedly a signal to stop the entry for risk-averse people.

The weakness of the macro environment has caused aluminum companies to stop production to protect themselves. Alcoa announced last month that it would close its second-largest smelting plant in the United States; Alcoa announced it would cut some production lines, resulting in a loss of $20 million.