Chinese aluminum demand
One of the factors that boosted industrial metal prices in 2017 was better-than-expected demand from China (FXI). China’s construction sector was strong in 1H17. The country’s car sales also defied pessimists. Notably, the construction and automotive sectors are among the largest aluminum end consumers. While the demand from both of these sectors was strong in 1H17, we saw some moderation.
Moderation in demand
China’s construction and fixed asset investment sectors have shown signs of moderation in demand for the past few months. Looking at the automotive sector, earlier this month, CAAM (China Association of Automobile Manufacturers) lowered its 2017 vehicle sales growth forecast to 4%. At the beginning of the year, CAAM forecast that China’s auto sales growth for 2017 would be 5%.
It’s worth noting that China would be fully rolling back a sales tax cut on vehicles from 2018. The tax cut, which was announced in 2015, helped buoy the country’s sagging car sales. Since the automotive industry is among the biggest aluminum consumers (AWC), we could see some repercussions in aluminum demand if China’s car sales don’t grow as much due to the sales tax hike.
China’s construction increased and lifted metal demand this year. However, the increase isn’t expected to continue in 2018. China’s 2018 aluminum demand growth rates could be lower compared to 2017.
Since China is the world’s largest aluminum consumer, its demand dynamics tend to impact aluminum prices. Along with supply, Chinese aluminum demand could be the wild card for aluminum producers like Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHY) in 2018.
Next, we’ll discuss what could drive US aluminum markets in 2018.