Steel Products Prices North America

CRU on Aluminum: An Economic Snapshot

Written by CRU Americas

By Matthew Abrams, Analyst, CRU Group

Over the past week, there have been a few noteworthy updates to new Russian sanctions. First, the big news was Russia’s removal from the list of Most Favored Nations. This allows room for new duties to be imposed on the imports of Russian goods. The U.S. does not import much aluminum, which leaves the upside price risk minimal. Any change would have to work its way through Congress, which will take time to see if there will be any real effects.

Besides the direct sanctions, the war has upped the amount of uncertainty in markets. Some days are filled with hopeful news of a quick end, while the next may be more grim. This leaves market participants anxious for each day’s news. The impact of new sanctions is unclear as well. The new sanctions on steel from the EU and the ongoing attacks on Ukraine civilian infrastructure put aluminum sanctions in the realm of possibilities. Antiwar sentiment continues to grow and participants are refusing to deal with Russian vessels.

This is creating a dilemma for many involved in the markets. CRU has seen lead times extend and new contracts being discussed sooner, and for longer terms, than in the past, while this high level of uncertainty encourages a “wait and see” attitude.

Looking at Domestic Markets

It is important not to lose track of our domestic economic pulse. There are a few challenges that the U.S. economy is facing and could affect demand in the coming years.

Inflation is here to stay. We saw inflation spike during the strong growth period following the pandemic-based lockdowns and was originally thought to be transitory. That thought was changing already before the invasion began, but now with unprecedented sanctions hitting Russia and everything from wheat to metals and energy being a potential target, prices have nowhere to go but up. Inflation hit close to 8% recently across all urban consumers. 

Household debt is at an all-time high and has been growing substantially over the past five years. One thing to keep in mind is that a lot of payment deferment programs that were in place due to COVID-19 are scheduled to come to an end this year, including student loan repayment delays and anti-eviction policies. When these payments start to come due, on top of already higher prices, households could see a large drop in their discretionary income. 

Interest rate hikes have been on the table ever since inflation hit markets, and this week we saw the first action taken by the Fed. While this was the first rate hike since 2018, perhaps the most important part of the Fed’s presentation was that more rate hikes are on the table. Historically, the Fed has never been this far behind inflation, which could apply the necessary pressure to keep rates going up. Combined with higher inflation, uncertainty, gas prices, and the restarting of debt payments, we could see the beginnings of demand destruction.

Where Would We See It First?

While the U.S. may not enter a full-on recession, hints of where changes in demand are first seen can be ascertained from previous economic downturns. The first signs of an incoming recession are felt in consumer durables, a sector in which aluminum is a key component.

Leisure-related activities are sure to be the first hit. Boats, RVs, snowmobiles, etc., are more expensive to both finance and drive, which could cause consumers to cut purchases as their disposable income drops along with inflation. As COVID restrictions are steadily being removed, we could also see people spend more of their leisure time on bigger travels as opposed to closer to home activities.

Auto is another sector that fits the theme with higher financing rates coming on top of already inflated prices, including at the pump. Prices of both new and used cars are continuing to grow and semiconductor bottlenecks remain. Wait times on new orders of up to 18 months can be seen on some SUVs.

Housing has been one of the first to see an impact of to the Fed rate hike with the average home mortgage rate hitting over 4% for the first time since 2019. While new starts were high throughout 2021 and jumped to the highest seen since 2006 in February, new mortgage applications and home builder confidence were both considerably down. This directly illustrates the dichotomy of current markets, with the number of built-up orders contrasted by skittish new buyers.

These factors could lead to demand directed more towards rental units, which is not necessarily a bad thing for aluminum. With ultra-modern, high-density buildings being preferred by consumers, the amount of aluminum used in construction has the potential to actually increase.

The most important piece to this puzzle will be the question of when. Auto and housing both have been plagued with supply-chain issues that have pushed orders out through this year. This leaves a backload of demand that can prop up the markets through the rest of this year. The challenge will be to analyze new and cancelled orders in an attempt to differentiate current demand trends for new purchases from filling lagged orders.

Editor’s note: Matthew Abrams joined CRU in January of 2022. Prior to joining, he attended Konkuk University in Seoul where he studied economics and statistics as well as the Korean language. He is a member of CRU’s aluminum team in Pittsburgh focusing on downstream products and will be a regular contributor going forward. He can be reached at

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