While it might not be as exciting as gold, palladium, and other precious metals, aluminum demand is considered one of the top predictors for changes in global economic growth.
Investors looking to have a better understanding of the worldwide economy would do well to follow this market. For the first time in a while, global aluminum production has flat-lined as various outages across the world limit supplies.
A new report from the International Aluminum Institute (IAI) has gone on to show that long-running smelter outages have been keeping production relatively the same as other markets have dropped substantially.
Aluminum output in Latin America, for example, fell around 22 percent during the first quarter of 2019 down to 253,000 tonnes, with much of this being attributed to the closure of the Brazilian Albras smelter and other refineries.
Output in Western Europe also dipped, dropping 4 percent during Q1 2019, sitting at 877,000 currently, with a number of smelters in Spain have been put in “restart condition.”
Counteracting these declines were increases in output from the U.S. and Russia. North American smelters, with the exception of Canada, are ramping up production as regional output rose by 2.3 percent in the first three months of 2019, sitting currently at 947,000 tonnes.
Meanwhile, Russia has announced the commissioning of the first phase of its massive new Boguchansk smelter in Siberia, adding at an extra 268,000 tonnes per year by itself once it’s fully operational.
So far, the Russian facility has been operating in a sort of “test mode” for the past couple of years.
While Latin American/European output fell and American/Russian production rose, the Chinese aluminum landscape is more complicated, with the numbers remaining difficult to interpret.
Low aluminum prices seen since the beginning of Q2 2018 have had a downward impact on aluminum output in the nation, while Beijing’s war on pollution has also pushed companies to curtail the number of smelters they operate.
At the same time, official numbers are not entirely reliable, as “illegal” smelting capacities are still being expanded by some companies that are working outside the officially sanctioned boundaries of Chinese regulators.
In the province of Shandong, for example, the area was supposed to restrict aluminum capacity to 4 million tonnes, but it turns out that it might have allowed as much as 12 million tonnes to be produced. As far as the IAI can tell, Chinese production edged upwards by 1.6 percent in Q1 2019.
Aluminum is one of the most closely watched metals in the world as it’s one of the best predictors of economic growth.
In comparison to copper, which also is watched for its ability to forecast changes in economic growth, the demand for aluminum is more broadly distributed.
Copper tends to be more in demand in Asian economies, and hence is a slightly better predictor of the Chinese economy, although what happens in Beijing will influence the world’s economy nonetheless.
As the markets oscillate between worrying about a recession to celebrating new heights on the indexes, savvy investors looking to accurately predict a future downturn would do well to follow the aluminum markets closely.