Aluminium vs Copper: A Market Analysis

Aluminium prices have recently outshone copper, but analysts at Morgan Stanley predict a potential shift in favor of copper.

While aluminium prices have jumped by 11%, driven by rising input costs, strong demand from key sectors in China, and temporary supply disruptions, Morgan Stanley believes that copper is better positioned to benefit from improving market conditions and fundamentals.

Factors Driving Aluminium Prices

Aluminium’s recent price surge is primarily due to the significant increase in alumina costs. Alumina (OTC:AWCMY), a key ingredient in aluminium production, has seen prices rise to nearly $520 per tonne. This increase has been passed on to consumers in the form of higher aluminium prices. Additionally, strong demand for aluminium in China—particularly from sectors such as solar energy, grid infrastructure, and electric vehicles—has boosted the metal’s performance.

For example, grid spending in China has increased by 19% this year, contributing to rising demand for aluminium.

“Long queues to withdraw metal at the key Port Klang warehouse have driven a squeeze on some near-term contracts, which may prove to be temporary. In contrast, copper has been under pressure with rising global growth concerns and overstretched positioning unwinding,” the analysts said.

Concerns Over Aluminium Price Sustainability

While aluminium prices have been strong, concerns are growing about the sustainability of this trend. Global production of aluminium is now at an all-time high, with China returning to its role as a net exporter since May 2024. As supply continues to ramp up and demand growth stabilizes, the momentum behind aluminium’s rise may begin to wane.

Copper Market Outlook

Conversely, copper has faced pressure during this period. Its prices have struggled amidst global growth concerns and the unwinding of previously overstretched market positions. However, analysts at Morgan Stanley see several encouraging signs that copper is poised for recovery.

Demand indicators for copper in China are showing signs of improvement. The Yangshan copper premium, reflecting spot market demand strength, has rebounded, signaling an increase in physical demand for copper.

Additionally, inventories in China are beginning to draw down, indicating higher utilization rates at wire plants and a slowdown in refined copper supply growth. These trends suggest that the fundamentals for copper are strengthening, setting the stage for a potential price rally.

Market positioning in copper has also improved. The sharp correction in copper prices has normalized net positioning, reducing the risk of further liquidation. This creates a more supportive environment for new investment in the market, potentially driving prices higher in the coming months.

Conclusion

Morgan Stanley remains bullish on both aluminium and copper for the fourth quarter of 2024. However, they believe copper has stronger potential to outperform aluminium due to its recent underperformance and improving market dynamics. Despite the optimism, analysts caution that a worsening global economy could negatively impact copper more significantly than aluminium, as copper is more sensitive to economic fluctuations.