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2Q16 Call: Century Aluminum Gives a Scary Industry Outlook!

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Nov. 20 2020, Updated 5:30 p.m. ET

Century Aluminum’s 2Q16 earnings call

Previously, we looked at Century Aluminum’s (CENX) 2Q16 earnings. In this part of the series, we’ll see what Century Aluminum’s management had to say about the industry outlook during the company’s 2Q16 earnings call.

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Industry outlook

According to Century Aluminum, global aluminum markets were in a deficit of 0.5 million metric tons in 1H16. The company also said that “This is the largest first half deficit in well over a decade.” The deficit could be mainly attributed to lower Chinese production. We have seen a decline in Chinese aluminum production this year. You can see this in the above graph. However, Century Aluminum expressed apprehension about growing Chinese supply in 2H16. The company sees restarts of idled Chinese smelters combined with the incorporation of new capacity as risks to global aluminum markets in 2H16.

According to Century Aluminum, Chinese aluminum production could increase in the “high single digits” in fiscal 2016. This would mean a sharp YoY (year-over-year) increase in the second half of the year. Chinese production fell YoY in 1H16. Century Aluminum also expects Chinese aluminum demand to moderate as the impact of government stimulus wanes.

It’s important to note that aluminum prices could come under pressure later this year if we see a sharp increase in Chinese aluminum production like Century Aluminum is projecting. However, Century Aluminum is banking on trade protection to come to the aid of US smelters.

Other aluminum producers

During its 2Q16 earnings conference call, Norsk Hydro (NHYDY) raised its 2016 global aluminum demand growth projection to 4%–5% from the previous projection of 3%–4% growth. The company attributed higher Chinese aluminum demand as the key factor behind its new projection. Notably, Alcoa (AA) maintained its 5% global aluminum demand growth forecast for 2016 during its 2Q16 earnings conference call. Read What’s Really Driving Aluminum Prices in 2016? to explore how the demand-supply situation is shaping up.

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 ~5.0% of XLB’s portfolio.

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