Aluminum price effect on copper prices, production, and consumption

Throughout the world, copper price is widely revered as an indicator of the world’s economic stability to the point that this useful red metal has been honored to be known by the name of Doctor copper.

That is in light of the fact that copper has widespread usage in industrial sections of renewable energy sources, electricity, manufacturing infrastructure as well as building constructions.

So when it comes to factors affecting copper prices, a list of influential variables of the global market economy is involved.

In other words, a raft of various factors such as the likes the financial status of the market, GDP per capita across the world, the rate of real interest, recession, inflation, as well as whatever occurs in the countries that are on demand and supply side of the red metal more specifically South American countries particularly Chile and Asian countries, especially China, have a close interrelation with copper prices.

Moreover, the price of crude oil at the international level, the worldwide variation of industrial products, the rate of exchange for the stock of refined copper and its global production, coupled with the prices of some other precious materials such as aluminum, silver, and palladium are some of the other factors influencing copper prices.

Among the endless list of affecting factors that are of considerable interest to investors and speculators, the Aluminum price effect on copper prices, production and consumption is specifically noticeable.

According to a study accomplished by Natalia Iwaszczuk and others, copper prices are very closely related to the price of aluminum.

Because aluminum and copper are both substantially used as the components of transformers in the electronics section, these two metals have often been compared to each other.

Furthermore, aluminum is considered to be a substitute in place of copper in several other domains. As a result, with the drop in aluminum prices, the demand for copper would decrease because more people are urged to use aluminum instead of copper, negatively affecting copper prices too.

Accordingly, there must be a positive correlation between them and vice versa, as the increase in aluminum prices would also increase copper prices.

In fact, the beginning of the copper vs. aluminum contest dates back to World War II, when due to the extensive use of copper in shell casing and firearms, there was a shortage of red metal.

Consequently, because of a remarkable resemblance between the favorable characteristics of copper and aluminum and copper scarcity at that time, aluminum was chosen in many industries as the most suitable alternative to copper.

Especially when during that period, aluminum was in abundant supply as it was a lot cheaper than red metal so as to be a good choice for the transmission of high voltage power lines.

Nowadays, in order to fulfill the goal of transmission to net zero emissions, a gap between copper demand and supply is predicted at least by 2070.

With the anticipation of the copper shortage, the prices are skyrocketing, urging more and more people to find another solution and an alternative in its place.

So what better than aluminum, especially when aside from the fact that it has 40% lower electrical and thermal conductivity in comparison to copper, it has only 30% of the copper density, to such an extent that an aluminum electrical wire has half of the weight of the same wire made up of copper, which works a miracle in the process of handling and installation.

With the added advantage of less expensive costs and having substantial uses in high-power infrastructures, converters, and bus bars, in the long run, aluminum would be the winner of Al_Cu rival, particularly when there would be a deficit in copper supplies to the point that the soaring demands would not be satisfied and the copper prices would skyrocket.

Now come along with us to further scrutinize the trends of copper and aluminum prices to see whether they have any sort of interdependence with each other or not.

Further insight into aluminum prices

For the sake of better understanding the effects of aluminum price on copper price, let’s dig deep into the current price of aluminum at the global level as well as its future price prediction.

Currently, the price of aluminum has dropped around 30% after its record high was established in March 2022 and that is primarily due to imposed selling pressure on industrial materials by the United States Fed.

Besides, as the Aluminum price is directly under the influence of the volatility in the markets of energy sources, and around 33 percent of the metal’s cost of input is associated with energy, with the rise of energy prices due to Russia and Ukraine invasion, the prices of aluminum rose dramatically in March 2022, especially when EU started to impose sanction on Russian supplies while Chinese and European aluminum production was reduced.

Then owing to an abrupt surge of Coronavirus cases in China one more time, followed by restrictions to prevent the pandemic and its repercussions on the global economy, China which is the largest aluminum consumer in the world, has slowed down its demand in the sectors of building, manufacturing autos, packaging, and electricity-related domains, beginning to export aluminum and as a result, aluminum prices have taken an overall downward trend since then.

As shown in Figure 1, the price of aluminum is currently wavering around $2,500 per tonne in spot markets after its record high price hit above $4,000 per tonne in March this year.

Figure 1. Aluminum price in recent months

In addition, it is expected that demand for aluminum would increase in the future due to its remarkable features all of its own, most prominently its light density and its property of being recycled very easily.

Not to mention that because of Biden’s infrastructure bill of $1.2trn, just $550bn has been set to account for providing infrastructures to build bridges, roadways, and panels of energy, while a lot of capital was also put to launch better public transits, EVs and charging systems.

Hence, in so far as to decrease the aforementioned projects’ weight, enhance their efficiency and provide the most cleverly designed plans, there is no panacea except aluminum; that is why its demand is projected to grow.

Likewise, Fitch Rating has estimated that the aluminum price by 2025 would be about $2,750 per tonne, while its price by 2030 is predicted to be approximately $2,900 per tonne.

Further insight into copper price and its associated rate of production and consumption

In so far as to check out whether the aluminum price is in line with copper price or not, let’s unravel the volatile trends of copper prices too.

With the growing rates of interest and the unstable economic status, copper prices have been a bit volatile these days, as illustrated in figure 2. But what is self-evident is the fact that with the transition to green energy, the world requires the red metal abundantly, while the copper supply sources across the world are lagging.

Figure 2. Copper (LME, grade A) price in recent months

For instance, the largest copper producer countries, Chile and Peru, are coping with conundrums with the locals as well as water and energy shortages. That is to say, because of water scarcity in Antofagasta and Atacama of Chile, producers have to use seawater in order to process the copper commodity.

Not to mention that Chile’s government has imposed taxes on royalties mining for the over 50,000 tonnes production of copper per year that would discourage investors, resulting in the rise in copper prices.

Furthermore, just like the prices of other metals that shot up sharply in March 2022 owing to the war between Russia and Ukraine, copper prices rose 10% to hit a record high and went on to go up more than $1,000 with China’s apparent economic recovery from COVID-19 lockdown.

Be that as it may, copper prices have dropped 25% ever since March, hitting the steepest quarterly falling slope since the financial chaos of the second quarter of 2008.

That is perhaps because China underwent financial turmoil in its real states industry, and the demand for copper used in construction decreased. What is more, the tightened global market and the rising inflation raised the concept of the global recession. At the same time, the ongoing restrictions of the pandemic have emerged again in China and different other parts of the world.

Yet the copper prices have started to slowly rise up again recently, hovering around $3.3 per pound on the last days of July 2022, as China’s banks have been encouraged to satisfy the needs of developers by providing them financial support in the form of loans.

Although there have been many fluctuations in copper prices in recent years, in the long run, it is estimated that the copper price would become 60% higher in the upcoming years, and Goldman Sach’s copper price forecast for 2025 has been announced to be approximately $15,000 per ton.

While the copper demand is ever more growing, bringing new mines to ultimate production needs the passage of a decade. Hence the copper flow would not rise up until 2030, as the current reserves have been gradually depleted too.

With such a substantial deficit in copper supply, the rising inflation, and the associated increase in the cost of raw materials, copper production would become a lot more expensive, tightening the copper market more intensively and urging us to use its cost-effective substitute, aluminum in its place.

Investing in mining and the production process is not possible for everyone, especially retail investors. Cryptal.global aims to solve all the problems by combining Blockchain technology, the mining industry, copper production, and tokenization.

Still have questions? Get in touch:
Telegram | Twitter | Youtube | Whitepaper | Reddit | FAQ