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Alcoa Is Forecasting a 5% Aluminum Demand Growth: Will It Happen?

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Jun. 9 2016, Updated 8:05 a.m. ET

Global aluminum demand

During its 1Q16 earnings call, Alcoa (AA) revised down its 2016 global aluminum demand growth projection to 5%. It reduced its demand projection since the company now expects Chinese aluminum demand to increase 6.5% this year. That compares to the previous guidance of an increase of 8% year-over-year (or YoY).

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Demand growth forecasts

Century Aluminum (CENX) didn’t provide any guidance for 2016 aluminum demand. However, CENX seems the most bearish on aluminum demand growth. According to CENX, global aluminum demand increased 4% YoY last year. Alcoa and Rusal expect that global aluminum demand increased 6.5% and 5.6% YoY, respectively, last year. Rusal now expects global aluminum demand to increase 5.3% YoY this year, including a 7% YoY increase in China. Previously, Rusal had forecast that global aluminum demand would increase 5.7% this year.

China is the wild card

Norsk Hydro (NHYDY) was also quite circumspect on 2016 aluminum demand. During its 1Q16 earnings conference call, NHYDY said it expects global aluminum demand to increase by 3%–4% this year.

During Century Aluminum’s 1Q16 earnings conference call, CEO (chief executive officer) Mike Bless called China “a wildcard from both a demand and a supply standpoint.” He said that 1Q16 aluminum consumption in China was better than expected. He also cautioned that the first quarter can be volatile due to the holidays in the early part of the year.

We’ll get a better idea of global aluminum consumption by looking at some of the demand indicators. In the next part of the series, we’ll analyze how aluminum demand is playing out in China, the largest aluminum consumer.

You can also consider the Materials Select Sector SPDR ETF (XLB) to get a diversified exposure to the materials sector. Together, Alcoa and Ball Corporation (BLL) form 4.5% of XLB’s portfolio.

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