The Covid-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity and aluminium market
“The Covid-19 pandemic and its disruption to industrial production has begun to negatively impact the metals industry in the USA and worldwide. Weak demand and excessive inventories could affect aluminium prices and delay new smelting capacity ramp-ups. As a result of the pandemic, the global economy is projected to contract sharply by –3% in 2020, much worse than during the 2008–09 financial crisis. In a baseline scenario—which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound—the global economy is projected to grow by 5.8% in 2021 as economic activity normalizes, helped by policy support.
For now all is unknown. This comes on the heels of a difficult period for the metals industry in 2019, when it struggled with tariffs and experienced early signs of a demands lowdown. Now, the industry is in a day-to-day mode of monitoring and forecasting the demand for products from end-users, including the automotive sector, oil and gas industries, construction sector and others, such as white-goods (large home appliances) manufacturers. The major Covid-19 risk to the economy is that the health crisis will unfortunately be accompanied by a financial crisis. Top 3 concerns with respect to Covid-19 are: 1- Potential global recession; 2- Financial impact, including effects on results of operations, future periods, liquidity and capital resources; 3- Decrease in consumer confidence thus reducing consumption.
The US and Europe’s economies could take until late 2022 or early in 2023 to fully recover from this health emergency that has forced more than 3 billion people to stay at home. If the public health measures put in place including social distancing and lockdown measures are initially successful, but will however fail to prevent a resurgence of the virus until a vaccine is developed, then the world economy will experience a very slow recovery to return to the pre-virus period. On the other hand if the public health response is stronger and more successful, then the recovery period will be much shorter and we may look for a full recovery by beginning of 2021.
The Aluminium industry demand was ailing before the current Covid-19 crisis, it is currently a market underperformer and the demand has slowed down, and prices have declined for eight consecutive weeks to below USD 1,500/ton. This pricing level makes most of the world’s production unprofitable, the metal industry has never been good at responding fast to a changing market. The scale and speed of the demand drop caused by Covid-19 will test the industry elasticity: aerospace industry is evaluating production cuts and automotive companies have reduced production or shutdown most of their facilities, car sales have dropped about 80%. The engineering and construction industry will experience its own slowdown with some construction sites locked down.
The aluminium global sector face challenges and will require swift reactions to market dynamics, world primary aluminium demand may fall 6% in 2020 in comparison to prior year, and as supply chains around the world have been disrupted, company and business leaders must prepare to tackle the effects in production, operating costs, transportation, logistics and customer demands. The Covid-19 outbreak is expected to dent demand and exacerbate China’s supply surplus, while logistical issues are already disrupting bauxite arrivals and shipping of alumina from refineries in certain areas.
As to the US market, though many customers in Aluminium sector may be eligible for government stimulus support, there may be a possibility that this crisis will take a cumulative negative toll for some of the downstream end-users; unfortunately there are plenty of unknowns as to how long the downturn of the market will last and also to the level of demand requirements in the future. About Canada, its exports of total aluminium including scrap to the US stood at 220,000 tonnes in January 2020, an increase of 32.53% or 54,000 tonnes year-on-year. Obviously there will be a slowdown on the economy for the next year that we have not see impacting yet.
My final comment is that the Covid-19 pandemic has and will continue to cause widespread concern and economic hardship for consumers, businesses and communities around the globe; the situation is fast moving with widespread negative impacts, full worldwide cooperation and an overall strategy will be required to confront this potential and invisible enemy and to get the world economy back on its feet”.