The price of aluminum has been impacted by a number of factors that have influenced both the demand of the material, and the available supply, thus effecting the price. In fact, the aluminum price is about 18% higher than it was last year. Specifically, from impacts in China, the world’s largest producer and consumer of the metal.
Last year, as a response to signs of slowing economic growth, China’s government put into place a fiscal stimulus aiming at the infrastructure sector. This stimulus boosted the demand outlook for industrial metals like aluminum. In turn, prices have adjusted accordingly to this increased demand. At the same time, excess production capacity has ceased to help combated air pollution, providing limited supply and more motivation for price increase.
The Chinese government has been cracking down on aluminum smelters that are creating excessive pollution. This will result in the closure of about 10% or more of the country’s smelting capacity. Since China is responsible for around 60% of global aluminum production, the closure of even far less than the predicted 10% of its production capacity would have a significant impact on the global balance of aluminum’s supply and demand.
With the same goal of eliminating pollution and greenhouse gas emissions, automobile producers are also changing their car engineering methods to incorporate a process called “vehicle lightweighting”. This makes aluminum use in production an integral part of the process. Because of this, aluminum in the automobile industry will also reach a steep growth in demand.
A car with a high content of aluminum, while generating a higher impact on the environment during the production and raw material phases, will impact the environment much less during the product-use phase. There is no doubt that these changes will heavily impact the raw material aluminum, and forecasts provided by Ducker Worldwide say that the “total aluminum content for 17.4 million vehicles produced in the US in 2015 is approximately 7 billion pounds, an average of about 400 lbs per vehicle.” These forecasters also go on to state that it is predicted that by 2025, aluminum will comprise more than 75% of pick-up truck body parts, 24% of large sedans, 22% of SUV’s and 18% of minivan body and closure parts.
As the number of vehicles that use this “lightweighting” process increases, and the amount of aluminum used for each car also increases, so too will the demand and price of the material. That coupled with the expected decreasing supply means that, as predicted, the aluminum price should continue to increase as part of a basic economic supply and demand model.
Additionally, in the gutter industry, guards have become increasingly popular and necessary, especially as the designs become more advanced and are perfected. The most popular guard products on the market all incorporate aluminum into their design. A majority of these guard products are manufactured with imported aluminum from China.
Interestingly enough, these market changes may start to significantly sway the cost of materials and make our higher cost materials, like copper, more affordable. According to Goldman Sachs, as stated in a CNBC article, “Aluminum prices have outperformed most other commodities year-to-date, rising about 15 percent against steel and 3 percent against copper.”
As the price of raw material goes up, so too does the products and services that use these materials. If you always dreamed about specialty gutters, you may see a change in the prices of these products in the future. As the aluminum price continues to increase, and its demand becomes higher, and access more limited, there’s always a chance that aluminum may eventually shift to a specialty product, as far as price is concerned. If this does in fact happen, those beautiful steel or copper gutters you’ve always dreamed of for your home just may become more affordable! Additionally, it is important to remember that current specialty products are also far superior to aluminum when it comes to longevity and durability. That being said, if aluminum does start to resemble the costs of a product like copper, the better investment would be copper.