Can Strong Automotive Demand Support Aluminum Demand in 2016?



Automotive demand

Rusal expects global aluminum demand to increase by 3 million metric tons in 2016. It expects half of this incremental demand to come from the automotive sector. So it’s crucial for investors to keep track of the global automotive industry. China, the United States, and Europe are the three largest automotive markets. In this part of the series, we’ll see how vehicle sales are playing out in these markets.

Article continues below advertisement

The automobile sector in China

Looking at China’s automobile sector, we see that in the first four months of 2016, 7.4 million passenger cars were sold. That’s a YoY (year-over-year) increase of 6.6%. Last year, China announced a 50% cut in sales tax on cars with engines smaller than 1.6 liters. The cut, which was effective October 1, 2015, will last until the end of 2016. The sales tax cut has been a key driver of the recovery in China’s automotive market, which was otherwise showing signs of stagnation.

Vehicle sales in the developed world

Vehicle sales have also been strong in the United States so far in 2016. According to Reuters, citing Autodata, US vehicle sales were 17.5 million SAAR (seasonally adjusted annual rate) in May. However, the general market mood seems to be that we could see sales plateauing after years of rapid growth. Alcoa (AA) and Constellium (CSTM) have placed big bets on growing aluminum intensity in vehicles. Advance Auto Parts (AAP) and Delhi Automotive (DLPH) supply components to the automotive sector.

Car sales have been strong in the European Union as well. Passenger car registrations there have risen 8.5% YoY in the first four months of 2016.

The housing sector has also been doing well in China and the United States (DIA). We’ll take a look at that in the next part of the series.


More From Market Realist