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Weak global manufacturing has hit aluminium prices, but the impact is likely to be short-lived as the physical market is tight, including in top consumer China.

A deficit in top producer China – expected to produce 42.5-million metric tons, close to its 45-million ton capacity – and short supplies of feedstocks bauxite and alumina are expected to push aluminium prices back on an upward trajectory.

Prices of the metal CMAL3 used in the transportconstruction and packaging industries at around $2 520 a ton on the London Metal Exchange (LME) have dropped 10% since hitting two-year highs of $2 799 last month.

“The only area doing okay is demand for packaging with events like football games and Paris Olympics,” said Uday Patel, senior research manager of aluminium at Wood Mackenzie.

Patel forecasts a surplus of half a million tons of primary aluminium globally, and aluminium prices to average $2 450 a ton this year.

But he added that US and UK bans on delivering Russian metals to exchanges and logistics hurdles due to the Red Sea shipping crisis could tighten supply.

Other analysts are more bullish, expecting a deficit for this year – a view reflected in physical market premiums paid above the LME benchmark prices to account for costs including transport and import taxes.

Duty-paid premiums for aluminium on the spot market in the United States AUPc1 at around $440 a ton are up 10% since late March, while those in Europe EPDc1 have jumped 30% to around $340 a ton over the same period.

“Premiums in major ex-China consumption regions showed faster growth, suggesting continued improvements in physical markets,” Macquarie analysts said in a note.

Macquarie expects global aluminium production at around 72-million tons and a deficit of 960 000 tons this year. It expects a 2024 deficit of 2.26-million tons in China.

Shortages are likely to see a continuation of the upward trend in Chinese imports, which in May rose more than 60% from a year earlier to 310 000 tons, much of them of Russian-origin and under US sanctions.

China imported 562 186 tons of primary aluminium from Russia in January-May, 70.5% more than the same period last year.

“While upside is limited near-term, the aluminium market remains tight and once demand re-accelerates, (LME) prices should push higher again,” said Bank of America analyst Michael Widmer.

Widmer expects prices to average $3 000 a ton and a deficit of 2.1-million tons next year. For this year, his forecasts are for prices to average $2 500 and a shortfall of 800 000 tons.