uploads///dollar index part

Will Other Aluminum Producers Follow Alcoa and Cut Capacity?

By

Jan. 18 2016, Updated 11:06 a.m. ET

Capacity curtailments

Aluminum producers have been feeling the pain from falling metal prices for quite some time now. However, we’ve not seen big production curtailments from aluminum producers. Only US (DIA) smelters owned by Alcoa (AA) and Century Aluminum (CENX) led the market with production curtailments. We haven’t seen capacity cuts from other major aluminum producers including RUSAL, Rio Tinto (RIO), and Norsk Hydro (NHYDY).

Article continues below advertisement

Stronger US dollar

The US dollar continues to trade at elevated levels as can be seen in the graph above. Smelters outside the United States have benefited from the US dollar’s appreciation. For smelters outside the United States, some costs are denominated in currencies other than the US dollar, although they mostly sell aluminum priced in US dollars. These smelters have seen their non-US denominated costs fall as a result of the dollar’s appreciation.

Also, aluminum producers have been using falling metal prices as a tool to negotiate fresh energy contracts with power suppliers. Cost deflation could put further pressure on aluminum prices. Furthermore, production cuts in the copper industry failed to have any material impact on copper prices. Wary of losing market share, aluminum companies could keep their smelters running. We might not see major production cutbacks unless metal prices deteriorate further.

2016 outlook

Copper has already breached its 2015 lows, but aluminum is still holding on to last year’s lows. However, in our view, aluminum could drift toward its 2009 lows in 2016. Weak global sentiments would weigh heavy on risk assets, including commodities. Falling energy prices could also have a negative impact on commodities, including aluminum.

In the next part, we’ll explore how alumina prices could play out in 2016.

Advertisement

More From Market Realist

  • Michelob Ultra beer
    Company & Industry Overviews
    AB InBev Is the Top Beer Brand Worldwide—Is It a Monopoly?
  • Businesswoman looking out a window
    Company & Industry Overviews
    Shifting Focus: Three Women Investing Funds in 2021
  • Aol logo on office building,
    Company & Industry Overviews
    What We Know About Apollo Global Management, New Owners of AOL and Yahoo
  • Chick-fil-A sign
    Company & Industry Overviews
    Why It Only Costs $10K to Own a Chick-fil-A Location
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.