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Alcoa and Aluminum: Key Drivers in the Remainder of 2017

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Aluminum 

Aluminum has been among the better-performing base metals this year. With gains of 13.0% in the first half of 2017, aluminum has outperformed copper and zinc, which are respectively up 7.6% and 7.4% in 1H17. Higher aluminum prices have supported aluminum producers’ price action in the first half of the year. In this article, we’ll see what could drive aluminum prices in 2H17.

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Chinese production

Chinese aluminum exports have been among the key issues facing global aluminum markets. The country’s aluminum exports were subdued in 1Q17. However, we’ve seen an increase in Chinese aluminum exports in recent months. In May, China’s unwrought aluminum exports were the second-highest on record. Higher Chinese aluminum exports follow the steep increase in Chinese aluminum production. According to the International Aluminum Institute, China produced 13.8 million metric tons of aluminum in the first five months of 2017, which represents a yearly rise of 11.1%. However, Chinese aluminum demand indicators don’t support this increase in production. If we don’t see the curtailment of Chinese capacity in 4Q17, as some market observers are expecting, aluminum prices could come under pressure.

Alumina prices

Alumina prices have been weak this year, which is also pressuring aluminum prices (XME). Notably, lower raw material prices tend to pressure metal prices as well. As we noted previously, lower alumina prices are positive for companies like Century Aluminum (CENX) that buy alumina from third parties. However, companies like Alcoa (AA), Rio Tinto (RIO), and Norsk Hydro (NHYDY) are negatively impacted, as they have captive alumina refining operations.

Along with these factors, President Trump’s policies could also impact US-based aluminum producers in 2H17. We’ll discuss this outlook more in the next part of this series.

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