Why Brexit Will Not Significantly Impact Aluminum Prices

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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.

Aluminum Brexit 1

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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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alcoa
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Notes:
  1. Alcoa Sees Slower Aluminum Demand as New China Supply Looms, Bloomberg []
  2. Brexit Aftermath: Goldman Sachs Predicts U.K. Will Enter A ‘Mild Recession’ In 2017, Forbes []