According to estimates, aluminum production has surpassed demand for almost a decade now. Meanwhile, the estimates for 2016 range from a record surplus to a record deficit. To be sure, Alcoa (AA) foresees a record aluminum deficit this year and says aluminum production will fall short of demand by 1.2 million metric tons.
Goldman Sachs, which is bearish on base metals (DBB), says aluminum production will exceed demand by a whopping 2.8 million metric tons in 2016. According to Bloomberg, Macquarie is also projecting a surplus of 1.7 million metric tons in 2016, while Harbor Intelligence expects aluminum markets to record a surplus of ~667,000 metric tons this year.
Investors looking at diversifying the risk of investing in a single security can also consider ETF’s for their investment portfolios. The Materials Select Sector SPDR ETF (XLB) is an alternate way to play the materials space. Together, Alcoa and Ball Corporation (BLL) form ~4.3% of XLB’s portfolio.
According to the estimates compiled by Bloomberg, Bank of America sees aluminum markets in a balance this year, with a deficit of only about 7,000 metric tons. As for other primary producers, RUSAL—the world’s largest aluminum producer—sees aluminum markets to be in a deficit of 1.2 million metric tons in 2016. RUSAL has upwardly revised the deficit projection during the company’s 4Q15 earnings release.
By comparison, Norsk Hydro (NHYDY) sees aluminum markets to be in surplus this year. But Norsk could revise its projections when the company releases its 4Q15 financial results on February 17. Meanwhile, Alcoa itself expects aluminum demand at 60.5 million metric tons in 2016. Looking at the projections, they range from a surplus of 4.6% to a deficit of almost 2%. The difference in these projections is too large to be termed as a rounding error.
Continue to the next and final part for our discussion of what’s driving this huge variation in 2016 projections.