LONDON (Reuters) – The outbreak of the deadly coronavirus could not have come at a worse time for the aluminium market. Global aluminium demand fell last year for the first time since the global financial crisis.
Expectations of a demand recovery rested on China, which showed encouraging signs of a manufacturing revival towards the end of 2019. The virus and the accompanying quarantine measures have since chilled economic activity, representing a short-term demand shock for the world’s aluminium market.
It’s why the London Metal Exchange (LME) aluminium price sank to a three-year low of $1,685 per tonne at the start of February. The fear is that China’s aluminium smelters will keep churning out metal even as the country’s demand implodes.
Since China is the world’s largest producer of primary aluminium, accounting for 56% of global output last year, this could have huge ramifications. At the same time, China’s complex production logistics chain is undergoing massive stress and a supply shock is building upstream.
Aluminium usage is highly exposed to the construction and transport sectors, meaning a double short-term hit to end-use demand. Chinese construction activity is being hampered by quarantine restrictions on workers returning from Lunar New Year holidays.