Aluminum deficit or surplus?
Before we start to explore where aluminum markets might be headed in 2016, we should familiarize ourselves with deficits and surpluses. In commodity (DBC) markets, production in excess of demand is termed as a surplus, while markets are said to be in a deficit when demand is more than the production. Whether the markets are in a deficit or in a surplus depends on both the supply and the demand side of the equation.
Key driver of prices
Market balance is a key driver of commodity prices. Production in excess of demand tends to put downward pressure on commodity prices, whereas prices get natural support when markets are in a deficit. Looking at aluminum, markets have been in a surplus for almost a decade now. Years of surplus production have created stockpiles of aluminum. Still, the official LME warehouse inventory will not give us the true picture of global aluminum stocks.
Currently, the official LME aluminum inventory is a little above 2.7 million metric tons. However, according to Reuters, citing CRU, global aluminum inventory, including unofficial stocks, stands at 15 million metric tons.
According to Alcoa, aluminum markets recorded a surplus of 551,000 metric tons in 2015. As far as the surplus goes, aluminum inventories should have increased somewhere in the supply chain last year. However, let alone an increase in inventory, we saw a decline of 1.3 million metric tons in official LME aluminum inventory.
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Alcoa (AA) expects aluminum markets to move into a deficit this year. However, others don’t have similar optimistic estimates for 2016. So let’s check out what different companies are saying about the 2016 aluminum market balance.