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Alcoa Forecasts Aluminum Deficit in 2016 after Years of Surplus


Nov. 16 2015, Updated 8:06 a.m. ET

Aluminum surplus

Global aluminum markets have been in a surplus for almost a decade. Surplus can be defined as supply in excess of demand. Although aluminum producers such as Rio Tinto (RIO), Norsk Hydro (NHYDY), and Alcoa (AA) have cut capacity since 2007, the Chinese smelting capacity has risen over the period. Global aluminum markets have been reeling under the impact of Chinese aluminum exports.

Together, Alcoa and Ball Corporation (BLL) form ~4%% of the Materials Select Sector SPDR ETF (XLB).

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Deficit in 2016?

At its Investor Day on November 4, 2015, Alcoa (AA) said it expects aluminum markets to record a deficit of 360,000 metric tons in 2016, “driven by strong aluminum demand, smaller production increases and smelter curtailments.” Alcoa also projected a 1 million ton deficit in the alumina market. This means Alcoa expects demand would be more than supply in aluminum as well as alumina markets in 2016.

Chinese aluminum exports have been a big concern for the aluminum industry. Speaking on the topic, Roy Harvey, president of the Global Primary Products segment, said, “In all the discussions that we’ve had with the Chinese government, in all the rhetoric that’s going on in China, the simple fact is, this is completely against what they are trying to drive as industrial policy. They see this as an inefficient use of energy. They see this as exactly what they’re trying not to drive by trying to drive their industry into higher value added product.”

Chinese exports

Alcoa also said that Chinese aluminum exports are falling, as you can see in the above graph. However, exports have fallen not because of any change in Chinese government policy but because the lower all-in aluminum price has made exports unviable for several Chinese smelters.

In the next part, we’ll find out what the markets think about Chinese aluminum exports.


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