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What Does China’s Slowdown Mean for Alcoa?

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China’s slowdown

China released its 3Q15 GDP (gross domestic product) numbers on October 19. According to data from the National Bureau of Statistics of China, the Chinese economy grew 6.9% during the quarter—the slowest pace since 1Q09.

The above chart shows the falling trend in China’s GDP. Although the 3Q15 GDP growth came in lower compared to the previous quarter, it was still better than the average market expectations of 6.8% growth.

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Better than the expectations

China’s 3Q15 GDP growth came in better than analysts’ estimates. However, the data also showed that industrial activity and fixed asset investment are growing slower than expected. In the first nine months of 2015, China’s fixed asset investment grew 10.3%. According to the National Bureau of Statistics of China, this is “1.1 percentage points lower than that in the first half of the year.”

The industrial output rose by 6.2% in the first nine months of the year compared to the same period last year. However, the industry output only grew by 5.7% YoY (year-over-year) in September. It missed analysts’ expectations. Meanwhile, retail spending remained strong. It grew 10.9% YoY in September.

Implications for Alcoa?

In its 3Q15 earnings call, Alcoa (AA) said that it expects the Chinese aluminum surplus to be 2 million tons. This is 0.2 million tons less than its earlier forecast. We can define “surplus” as production in excess of demand. Although there have been some capacity curtailments in China, it still isn’t enough to restore the balance in the global aluminum markets.

China’s slowdown could continue to put pressure on aluminum prices. Lower aluminum prices would negatively impact primary producers including Rio Tinto (RIO), Norsk Hydro (NHYDY), and Century Aluminum (CENX).

In the next part, we’ll discuss how vehicle sales are shaping up in the US (DIA).

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