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Is Rising Chinese Aluminum Supply a Risk for Alcoa?

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Chinese aluminum supply

As we noted in the previous part, aluminum prices have shown strength in 2017 despite an increase in Chinese aluminum production. Let’s see why aluminum prices haven’t reacted to higher Chinese aluminum production.

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Higher demand

China’s aluminum demand is expected to be strong this year. During its 1Q17 earnings call, Alcoa (AA) raised its 2017 global aluminum demand forecast to 4.5%–5.0% from its previous guidance of 4.0%. Now, Alcoa sees higher aluminum demand in China and world ex-China. We’ll get a clearer picture of China’s aluminum demand when we look at the country’s demand indicators in the coming parts of this series.

China’s aluminum production rose ~12% year-over-year in the first four months of 2017. However, the country’s aluminum exports haven’t seen a comparable increase. China exported 1.49 million metric tons of aluminum in the first four months of 2017, which is similar to the same period last year.

Inventory restocking

We should remember that for companies like Norsk Hydro (NHYDY) and Century Aluminum (CENX), higher Chinese aluminum production isn’t an issue if the produce stays within China’s borders. Chinese aluminum exports are more important. So far, Chinese aluminum exports have been in check in 2017. Lower Chinese aluminum exports have been partially led by higher domestic demand. Along with end-user demand, we have seen inventory restocking in China. So far, higher demand and inventory restocking held back China’s aluminum exports.

However, higher Chinese aluminum exports are a risk for global aluminum producers (RIO) (SOUHY). Could Chinese aluminum exports stay in check in the coming months as well? We’ll have to look at the outlook for China’s aluminum demand.

In the next part, we’ll discuss China’s recent aluminum demand indicators.

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