“We are moderately bullish on aluminium for 2019. It has a strong base case to gradually climb up throughout the year,” Robin Bhar, head of metals research at Société Générale, told delegates at the conference on Thursday September 13.

“Demand remains healthy and will continue to expand. The input costs are increasing and the prices should bear some relationship to this,” he added. 

Upstream alumina prices have hit record highs this year following a force majeure at major alumina refinery Alunorte and strikes by Alcoa workers at Pinjarra. Supply tightness is showing no signs of easing and is expected to reflect in aluminium prices, as Metal Bulletin reported recently.

For the rest of 2018, Bhar forecasts an average outright aluminium price of $2,150 per tonne.

By 2023, the aluminium outright price will rise to $2,200-2,300 per tonne and remain steadily at high levels, Bhar added.

The London Metal Exchange three-month price was recently trading just above $2,000 per tonne. It hit a year low of $1,977 per tonne in early April.

“Even without Rusal at the start of this year we were forecasting strong prices. We have a 60% probability that the sanctions against Rusal will be lifted,” Bhar added.

The United States Treasury placed sanctions on Russian aluminium producer UC Rusal in April, forcing consumers to look elsewhere for aluminium supply. The official deadline for the US to review the sanctions is October 23, but a number of market participants note that if there is no resolution by the end of September, Rusal could begin to cut production.

“The prices will be reflecting supply and demand,” he added.

Aluminium stocks on the LME are currently a decade low, with just 755,750 tonnes on-warrant. Traders also noted off-exchange stocks are also many million tonnes lower than in recent years, reflecting strong demand for the light metal.

“It is a strong macroeconomic platform and even without Rusal, the prices will be in a strong position,” Duncan Hobbs, research director at Concord, agreed.

Metal Bulletin analyst Yang Cao agreed that aluminium prices will stay high in 2019, with Metal Bulletin forecasting an average price of $2,200 per tonne for next year.

"The main price increases will come from the raw material and the supply issues. We are bullish for exchange prices and the market will run a deficit," Cao said.

He added that Metal Bulletin's forecasts are factoring in a deficit of over 1 million tonnes of aluminium globally for next year.

“A full blown trade war would be the only bullish headwind ahead – we only have 25% probability that there will be a large trade war,” Bhar said.

“I can’t see aluminium below $2,000 per tonne. The question is how low is the floor – and I don’t think it’s that low,” he added.

Spreads in 2019
Volatile spreads will continue to be a major talking point for aluminium prices in 2019, with backwardations expected to return to the market.

“I think it was surprising how quickly the LME spread moved into a strong contango in recent weeks. But backwardations will return,” Hobbs said.

The LME benchmark cash/three-month spread is currently at its widest contango in two years, hovering around $37 per tonne.

In April and July, significant backwardations took hold of the market, with the cash/three-month spread hitting around $50 per tonne backwardation.

“When the market moves into deficit, the forward curve should be flattened or in backwardation,” Bhar said.

“There will be most backwardations next year for sure. There will be less on warrant and less liquidity,” he added.