Can Alcoa Continue Its Good Run in 4Q17?

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Part 6
Can Alcoa Continue Its Good Run in 4Q17? PART 6 OF 8

Alcoa Receives a Boost, China’s Aluminum Production Fell

Chinese aluminum production

According to data released by the International Aluminum Institute, China produced ~2.6 million metric tons of aluminum in August 2017—a fall of 2.7% YoY (year-over-year). Producers like Alcoa (AA) and Century Aluminum (CENX) see China’s aluminum overproduction as a big challenge. However, there are several positives in China’s August aluminum production data.

Alcoa Receives a Boost, China&#8217;s Aluminum Production Fell

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Production falls

In absolute terms, China’s August aluminum production is the lowest since April 2016—if we ignore February 2017 when production fell due to fewer days and China’s Lunar New Year holidays. It’s the first time since August 2016 that China’s aluminum production has registered a yearly fall.

Excess capacity

We should remember that China plans to cut its excess capacity, especially polluting industrial units, in the steel and aluminum sectors. However, we don’t see the impact of these capacity cuts in China’s steel production. China’s production has been hitting fresh monthly highs. Even in aluminum, we saw a sharp increase in China’s aluminum production earlier this year. China’s aluminum production rose 18.9% and 22.4% YoY, respectively, in January and February. To make things worse, China’s January 2017 aluminum production hit a fresh monthly record.

However, China’s smelting cuts were aimed for the fourth quarter to lower the country’s pollution levels during the winter months. We started to see some signs that China is acting against its excess aluminum capacity when we looked at its August aluminum production data (MCHI).

Lower Chinese aluminum production is positive for companies like Alcoa. Lower production resulted in fewer exports in the last month. Read China’s August Trade Data: Mixed bag for Metal Investors for a detailed analysis of China’s August trade data.

In the next part, we’ll look at the recent trend in alumina prices (RIO) (NHYDY).


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