Nichole Bastin | Posted on July 13, 2022 |

Aluminum prices continue to display a macro downtrend. Shorter-term trading ranges are forming but also breaking quickly, signaling further bearish sentiment. Simultaneously, breakouts to the downside seem to indicate a lack of bullish strength and support.

Altogether, the Aluminum Monthly Metals Index (MMI) dropped by 8.06% month over month.   The MetalMiner Insights platform includes global aluminum prices, premiums, forecasts, and specific monthly buying strategies. Request a 30-minute demo of the MetalMiner Insights platform now.

According to the GDPNow tracker, a leading gauge of economic activity, GDP will likely contract during the second quarter of 2022. Currently, this contraction is estimated at around -1.9%. Should the latest forecast ring true, this would reflect the second quarter of decline in a row. Back in Q1, the economy contracted by about 1.5%. Typically, two back-to-back quarters of decline suggest a recession. So, pending the official release of Q2 GDP figures, does this mean the U.S. is officially in a recession? Not necessarily. GDP, while important, stands as but one factor the National Bureau of Economic Research (NBER) considers in identifying recessions. After all, these periods generally reflect a broader economic decline. Therefore, they are best considered through the lens of “depth, diffusion, and duration.” Alongside GDP, economists also look at employment, manufacturing, income, and retail sales data when determining the macro scope of economic activity. Those data points do not appear decisively recessionary at this point. However, they have begun to move in an increasingly less optimistic direction.

According to the Commerce Department, retail sales fell by 0.3% in May. And while fuel sales jumped by 4%, spending in other sectors contracted. Meanwhile, the ISM Manufacturing PMI, while still indicating growth, began to narrow in June. Of particular note, the New Orders Index officially fell into contraction at 49.2, while the growth of Backlog of Orders Index narrowed from 58.7 to 53.2. It’s also important to note that the Labor Department sees signs of moderation in the labor market. And while unemployment remains historically low, the economy has seen a slight rise in unemployment claims in recent weeks. On top of that, applications for U.S. unemployment insurance increased to their highest level since January.

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Every recession in history has come with its own specific causes and nuances. Altogether, the U.S. has faced 12 recessions since WWII. Of those 12, unemployment saw an average 3.8% increase, while the U.S. economy saw an average decline of roughly 2.5%. As expected, when the U.S. economy contracts, so too does the demand for aluminum. Indeed, during the four most recent recessions, global aluminum prices invariably declined.

For instance, the early 1990s recession was triggered by a spike in oil prices following the Iraqi invasion of Kuwait. This surge was coupled with a restrictive monetary policy and substantial debt from the 1980s. When it hit, aluminum prices peaked two months after the onset of the official recession, and the downtrend extended nine months beyond its culmination before the next rebound. Altogether, prices fell nearly 28% from their peak in that period. 

During the early 2000s recession, largely associated with the dot-com bubble and the September 11th attacks, aluminum prices peaked two months after the recession started. However, prices didn’t hit bottom until a month before it officially ended. In total, aluminum slid almost 17% from May to October of 2001.

The Great Recession, most notably tied to the subprime mortgage bubble, saw global aluminum prices peak seven months after its onset. As with the previous recession, the downtrend inverted prior to the end of the recession. In this case, it happened a full four months ahead of time. Nonetheless, aluminum prices dropped more than 56% from their peak.

Finally, we have the COVID-19 Recession. Albeit the briefest and certainly most abnormal of the four, aluminum prices likewise saw notable price declines. Many will remember that a more significant downtrend preceded this two-month recession and shifted upward at its culmination. During those two months, however, prices fell almost 18%.

Filed under: Commodities, Macroeconomics, Metal Prices, Non-ferrous Metals

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