Aluminium prices remained on edge after another series of weak economic numbers this week. Data by TradingView shows that the spot aluminium price was trading at $2,300 per ounce on Thursday, much lower than last week’s high of $2,392. It remains 14% below its highest point in 2023.

Aluminium price retreated after the relatively weak manufacturing PMI numbers from Asia and other industrial countries. In China, the biggest consumer, data by the National Bureau of Statistics (NBS) revealed that the manufacturing PMI retreated to 49 in December.

The same trend happened in the United States, where a report by the ISM showed that the manufacturing PMI rose slightly to 47.4. In Europe, the PMI figure came in below 50 as well. A PMI reading below 50 is usually a sign that the manufacturing sector is not doing well.

Aluminium prices tend to track trends in the manufacturing and construction industries. That’s because it is used to manufacture items like window frames, airplane and auto parts, utensils, and cans among others. 

Aluminium also tends to track the global monetary policy. It dropped in 2023 as central banks in the US and Europe intensified their interest rate hike campaign. The Fed hiked to a two-decade high of 5.50% while the European Central Bank (ECB) hiked to a record high.

High-interest rates affect aluminium prices because they impact consumption and manufacturing activity. There are signs that the Fed will delay its rate cuts as the crisis in the Middle East continues. In a statement on Wednesday, Fed’s Tom Barkin said that the Fed could even hike rates this year.

Meanwhile, aluminium has been going through a supply surplus, helped by strong Russian production. This explains why storage at the London Metal Exchange (LME) warehouses has been piling up. While western countries have announced sanctions on Russia, foreign buyers are still allowed to buy its aluminium. 

Looking ahead, aluminium prices could do well, helped by a recovery of the global economy as central banks start easing policies. This explains why iron ore prices have soared sharply in the past few months. 

Further, the metal will be supported by the growth of the civil and defence industries. Also, the automobile industry is expected to do well this year, driven by ICE and electric vehicles. In a recent note, analysts at ING said:

“Our short-term outlook remains neutral to bearish for demand, and we do not foresee a substantial recovery before the second quarter of 2024, which should be the starting point for US Fed rate cuts.”

Turning to the daily chart, we see that the aluminium price has been in a steady recovery mood in the past few weeks. Recently, however, the price has pulled back as concerns about China’s economy faded. In this retreat, aluminium has dropped below the key support level at $2,362, the highest swing on October 2nd.

Aluminium remains above the 50-day and 25-day Exponential Moving Averages (EMA). It is also approaching the first resistance of the Andrews Pitchfork tool. Therefore, I suspect that the metal will have some short-term volatility and then bounce back in the coming months. More upside will be confirmed if the price moves above the YTD high of $2,391.

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