As the recession recedes and the aluminium industry reopens its smelters, prices are rising. What will it mean for packaging, asks Mintec's Andrew Larkham


Those monitoring food price inflation often pay close attention to the price of agricultural commodities such as wheat, but this year it might be packaging in the spotlight. The rising price of aluminium, a key commodity in many types of packaging from drinks to ready meals, is rocketing and may push up the price of several household favourites as a result.

The aluminium industry, like so many other sectors, has suffered during the global economic slowdown. Smelters all around the world with the exception of China either drastically cut production or mothballed their sites.

But for producers, things are now picking up and prices have increased roughly 43% from the beginning of the year. Demand from manufacturing is part of the reason, but clever market manipulation by large traders is exaggerating the effects. Taking advantage of reduced capacity, a well-known market player was able to secure 800,000 tonnes of aluminium in Russia in June virtually the total available amount.

This move was enough to cause localised shortages in the Black Sea region and push the world price of aluminium up $200 per tonne in less than a week. Just as the metal market was recovering, the same trader did it again in September with a deal for 500,000 tonnes.

Today, the premiums for European delivery are sufficiently high to encourage extra delivery from North America.

For as long as reduced production levels within the EU are part of the issue, there is a risk that traders will be able to repeat this scenario. Some manufacturers are waiting until prices rise further to make it more viable to reopen shut capacity. In many instances, the cost of reopening has been greater than previously thought. Recent strikes in Italy over the loss of 190,000 tonnes per year and its associated employment have helped to highlight the issue.

Energy costs are another issue for smelters. Aluminium production requires huge amounts of energy if the metal is produced from the ore rather than recycled, and the EU has stated its intention to apply carbon levies on energy consumption this, too, is threatening economic viability of mass production within the EU.

The industry is lobbying hard to be made exempt from levies as it seeks to protect jobs and production, but the outcome is far from certain. These factors have helped to make recycling aluminium, which requires approximately 5% of the energy required to produce virgin metal, more and more popular within the EU.

On the futures market, the premium for 27-month over three-month contracts is at a six-month high, signalling that traders and clients are concerned about longer-term security of supply and so are buying ahead at today's prices.

Aluminium has already risen sharply in price and the signs suggest it's likely to keep climbing for some time to come.

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