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Will Alcoa Suffer the Same Fate as US Steel Companies?

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Nov. 20 2020, Updated 12:57 p.m. ET

Not everyone shares Alcoa’s optimism on aluminum

Alcoa’s (AA) management has expressed optimism about the aluminum industry’s outlook, citing facts like falling Chinese exports and lower inventory levels. However, not everyone shares Alcoa’s optimism. Discussing the Chinese aluminum industry, Mike Bless, Century Aluminum’s president and CEO (chief executive officer), noted during the company’s 3Q15 earnings conference call, “It’s actually meaningfully weaker than it’s been publically reported. Capacity is not coming off nearly fast enough.”

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Market view

According to a recent Wall Street Journal report citing Ivan Szpakowski, a Hong Kong–based Citibank analyst, “There’s little sign China will cut back soon, meaning few expect any imminent recovery in aluminum prices. Chinese producers have added about 3 million tons of new annual smelting capacity this year, and could add another 1 million tons before year-end.” Szpakowski added, “The capacity additions are very bearish for prices. It has driven the Chinese market into increasing oversupply and forced them to export more.”

We’ve been regularly reporting that Chinese aluminum exports would act as a dampener for aluminum prices. If prices start rising, we might see more Chinese aluminum exports, again putting pressure on aluminum prices.

Steel industry

US (SPY) steel companies, including United States Steel Corporation (X), AK Steel (AKS), and TimkenSteel (TMST), have been reeling under the impact of steel imports from countries such as China for quite some time. Steel prices in the United States have been on a free fall for the last 12 months.

The above graph shows the rising trend in Chinese steel exports. According to data released by China’s customs department, Chinese steel exports have risen almost 25% year-over-year in the first ten months of the year. Share prices of US steel companies have been languishing near multi-year lows, and not many expect any immediate recovery.

The concern is that if China doesn’t cut its aluminum smelting capacity meaningfully, aluminum might suffer the same fate as steel.

You can read more about the recent developments in this industry by visiting Market Realist’s Aluminum page.

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