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Alcoa Management on Aluminum Industry’s Outlook

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Industry outlook

Alcoa expects aluminum demand to double between 2010 and 2020. In its 3Q15 earnings conference call, Alcoa maintained its long-term outlook for the industry. However, it has made some changes in the short-range outlook. Let’s see what these changes are.

  • Alcoa (AA) has narrowed the North America automotive sector’s growth projection to 2%–4% from the earlier projection of 1%–4%. For Europe, Alcoa changed its projection to a growth of 1%–3% from the earlier projection of -1% to -3%.
  • However, the company has lowered its growth projections for Chinese automotive demand to 1%–2%. Earlier, Alcoa had projected Chinese automotive demand to grow from 5%–8%.
  • Alcoa has also downwardly revised the growth in the Chinese heavy-duty truck and trailer market to a growth of -22% to -24% from the earlier forecast of -14% to -16%.
  • Alcoa now expects Chinese aluminum demand to rise 9.3% year-over-year (or YoY) in 2015. Previously, the company had forecast a 9.5% YoY growth in Chinese aluminum demand for the current year.

Together, Alcoa and Ball Corporation (BLL) form ~4.4% of the Materials Select Sector SPDR ETF (XLB).

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Lower surplus?

  • Alcoa now expects the aluminum industry to record a surplus of 551,000 metric tons in 2015. That’s 210,000 metric tons less than its earlier forecast. You can see this in the above graph. We can define surplus as production in excess of demand. Alcoa also expects Chinese aluminum surplus to be 2 million tons, which is 0.2 million tons less than its earlier forecast.
  • According to Alcoa, there have been some capacity curtailments in China that should help bring down the country’s aluminum production. In our previous series, we saw how lower aluminum prices have made aluminum exports unattractive for Chinese producers. China’s aluminum exports have fallen on a YoY basis in both August and September.

In the next part of this series, we’ll explore Alcoa’s current valuations.

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