While aluminum demand is still rising, there are varying estimates about aluminum consumption. Alcoa (AA) expects global aluminum demand to rise 6.5% year-over-year in fiscal 2015. However, in its 3Q15 earnings call, Norsk Hydro (NHYDY) said that it expects global aluminum demand to rise 4% this year, down from its previous expectations of a 5% growth. Rusal slashed its global consumption forecast to 5.6% from the previous forecast of 6% during its 3Q15 earnings conference call.
During the company’s Investor Day, Alcoa’s management also commented on aluminum inventory. According to Alcoa, current global aluminum inventories equal 62 days of demand. According to Roy Harvey, president of Global Primary Metals, “40 of those 62 days are now held, for the most part, by financial investors.” You can read more about aluminum financing deals in A key guide to understanding the aluminum industry.
However, Norsk Hydro (NHYDY) estimates global inventory days at ~95. It’s important to note that Norsk Hydro has also accounted for the unreported aluminum stocks while arriving at the inventory days. LME (London Metals Exchange) aluminum inventories have been falling, as can be seen in the graph above. However, many analysts have expressed apprehension about the falling official LME aluminum inventories.
Aluminum markets are at a surplus this year, which means production is expected to be more than demand. This means aluminum inventories should ideally increase somewhere in the supply chain. Aluminum inventories are likely moving to non-LME registered warehouses that charge less rent. Unfortunately, we don’t have any official estimate of aluminum inventory with non-LME registered warehouses.
Aluminum producers including Century Aluminum (CENX) were expecting aluminum prices to rise after the production cuts. However, the goodwill failed to last beyond a week, and aluminum prices have resumed their downside. Lower aluminum prices would likely dint aluminum producers’ 4Q15 earnings.
Visit Market Realist’s Aluminum page for other recent developments in this industry.