Why Brexit Will Not Significantly Impact Aluminum Prices
The unexpected ‘leave’ outcome of the UK’s EU referendum has unsettled global financial markets. However, a British exit from the EU is unlikely to significantly impact aluminum prices. China is a dominant force influencing the dynamics of the global aluminum market, accounting for more than half of the world’s production and consumption of the metal. [1] In comparison, the EU is a much smaller player in the global aluminum market, accounting for roughly 15% of the global consumption of the metal and a smaller share of global production, as illustrated by the table shown below.
Goldman Sachs economists estimate that a worsening of the terms of trade between the EU and the UK post Brexit would negatively impact EU GDP by around 0.5%, with GDP growth estimates for the next two years cut to 1.25%. [2] Thus, the impact of a British exit on the EU economy is likely to be fairly muted. Taking into consideration that the EU represents only around 15% of global aluminum consumption, a British exit from the EU is unlikely to materially impact the demand and supply dynamics of the aluminum market. Thus, Brexit is unlikely to significantly impact prices of the metal.
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