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How Does Alcoa’s Record Aluminum Deficit Projection Look?

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Deficit projection

Before we start to explore where aluminum markets might be headed in 2016, we should familiarize ourselves with deficits and surpluses. In commodity markets, production that exceeds demand is a surplus, while markets are said to be in a deficit when demand exceeds production. Whether markets are in a deficit or a surplus depends on both the supply and the demand side of the equation. Most metals have been in a surplus in recent years due to higher production by miners (GNR) like BHP Billiton (BHP) and Rio Tinto (RIO) combined with falling demand growth rates.

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Aluminum’s decade of surplus

Aluminum has been in a surplus for almost a decade now. However, the opinion is divided on whether aluminum markets will be in a surplus in 2016 or if we’ll finally see demand exceeding production after years of oversupply. Whether markets are in a deficit or surplus will be a key driver of aluminum prices in 2016 and beyond. In this part of the series, we’ll explore what different producers forecast for 2016. Then, we’ll move on to see how the on ground situation looks with more than half of 2016 behind us.

Alcoa lowers its deficit forecast

Earlier this year, during its 1Q16 call, Alcoa (AA) projected a 1.1 million metric ton deficit for global aluminum markets. We noted that the projection could be aggressive, based on the upside risks to aluminum supplies. During the 2Q16 earnings call, Alcoa revised down its deficit projection to 775,000 metric tons in 2016.

During its 2Q16 earnings call, Norsk Hydro (NHYDY) maintained its previous forecast of a nearly balanced market in 2016 with a deficit or surplus of only about 500,000 metric tons.

Meanwhile, aluminum producers have changed their forecast for Chinese aluminum demand. We’ll discuss this more in the next part of the series.

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