Aluminum was among the best-performing base metals in 1H17. It outperformed several other industrial metals including copper. However, aluminum prices came under pressure last month. December doesn’t look any better for aluminum. Although aluminum prices are still up 18.7% in the year, they have fallen significantly since November. Leading aluminum producers including Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHY) came under pressure and followed aluminum lower. In this part, we’ll look at some of the factors that have been weighing heavy on aluminum.
As we noted previously, the US dollar’s appreciation could be one reason why we’ve seen downward pressure in most commodities. Aluminum’s 2017 story has been about rising global demand and smelter curtailments in China. However, we’ve seen fissures appear in the bullish theme put forward by some market observers.
First, there are concerns about Chinese metal demand. China’s real estate and fixed asset investment sectors have started to show signs of moderation. China’s car sales were weak in October, which prompted the country’s automobile association to lower its 2017 sales growth forecast.
On the supply side, China’s capacity curtailments have been lower than market expectations. Although China’s aluminum production has fallen on a year-over-year basis for three consecutive months, the country’s aluminum production rose 4.8% in the first ten months of the year—compared to the same period last year.
Alumina prices have shown weakness after prices rose sharply to all-time highs in October. Falling alumina prices could also be putting pressure on aluminum prices (AWC)
Read Why Alcoa’s in the Clouds, while China Aims for Blue Skies to see why Alcoa stock has come under selling pressure.