What Does Lower Global Aluminum Production Mean for Alcoa?



Global aluminum production

According to the International Aluminum Institute (or IAI), global aluminum production stood at 18.5 million metric tons in the first four months of 2016. To put this into context, global aluminum production in the corresponding period last year was 18.7 million metric tons. Production has fallen about 1.2% year-over-year (or YoY) in the first four months of the year.

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The decline in production

The decline in global aluminum production is a positive for US-based aluminum producers such as Alcoa (AA) and Century Aluminum (CENX). Lower production would help push aluminum markets toward a deficit and would support aluminum prices. Notably, US aluminum production has been falling steeply over the last few years as US (DIA) producers have idled their high-cost operations. However, non-US-based aluminum producers have been ramping up production.

For instance, Norsk Hydro (NHYDY) produced 514,000 metric tons of aluminum in 1Q16. That’s an increase of 3.4% over the corresponding quarter last year. Rio Tinto’s (RIO) 1Q16 aluminum production also rose 10% YoY, as you can see in the above graph. Rusal produced 916,000 metric tons of aluminum in 1Q16, which is 1.7% higher than its 1Q15 production.

Chinese aluminum production

China is the swing producer accounting for more than half of global aluminum production. However, lower aluminum prices have taken a toll on Chinese aluminum production. In the first four months of 2016, China produced 9.7 million metric tons of aluminum, a YoY decline of ~4%.

Lower Chinese aluminum production is reflecting in the country’s aluminum exports as well. In the first four months of 2016, China’s unwrought aluminum exports have fallen more than 10%. However, there’s always a degree of uncertainty about China’s reported production. Apparently, IAI has a separate line item for unreported Chinese aluminum production in its monthly release.

Aluminum demand has also been strong in China, which we’ll explore in the next part of the series.


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