By now, creditors are well aware of the inflation and material shortages created by ongoing supply chain issues. However, as the prices and movement of some goods begin to normalize (like lumber), others are getting much worse.
The price of aluminum has increased for 16 consecutive months, more than any other commodity—partly due to product scarcity, according to the Institute for Supply Management's (ISM) September Report On Business. The metal recently reached a record 13-year high of $3,000 a ton in London, according to Bloomberg, and the cost is likely to continue rising for the foreseeable future.
"Supply chain concerns are growing beyond electronics and chips into most other commodities. Lead times are extending, shipping lanes are slowing, and we will not see an end to this in 2021," one ISM survey respondent in the electrical equipment, appliances and components industry said.
The shortage is making some companies panic, but stockpiling aluminum will add to the problem. "Consumers are ordering more than 100% of their expected needs," Adam Jackson, director of metals trading at Aegis Hedging, told Bloomberg. "They don't expect to receive 100%, but if they overorder, maybe they'll land on the right amount and not forfeit sales. Such a practice has a serious risk if prices fall and you're carrying extra unhedged inventory."
In addition to the surging demand, production crunches in China also are driving up the cost of aluminum. According to Morgan Stanley, roughly 7% of aluminum production in China is halted due to power rationing in the country, forcing many factories to cut hours of operation or temporarily shut down. That would equal 1.5 million fewer tons of aluminum produced and a loss of $4.5 billion in metal sales.
"The aluminum supply chain has been ravaged by an unforgiving series of disruptions, which created asymmetries in price action that have helped propel prices towards decade highs," analysts at TD Securities said in a note. "With Chinese output significantly curtailed, imports of primary metal could eventually become a more recurring feature of the global market."
Traditional aluminum requires a lot of energy to produce, so some Chinese companies are looking at low-carbon alternatives for the future. But there is not enough renewable energy to support the total need, Reuters says.
The effects from political unrest that took place in Guinea—the second largest global producer of bauxite used to produce aluminum—in early September are still playing out in the market one month later. The United States and European Union also are working on coming to an agreement regarding tariffs imposed on aluminum imports from the EU during the Trump administration.
On November 11, at 11 a.m., NACM will hold an online panel discussion, The Current Headache of Supply Chain Issues, so members can stay up to date. Visit the Event Calendar to register.
-Annacaroline Caruso, editorial associate