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Analyzing Aluminum’s Outlook amid Trade War Fears

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Aluminum’s outlook

As we noted previously in this series, aluminum prices have seen downward pressure this year. Lower aluminum prices are negative for aluminum producers like Rio Tinto (RIO) and Norsk Hydro (NHYDY). Before, the lightweight metal registered a yearly increase for two consecutive years. In this article, we’ll look at aluminum’s outlook amid trade war fears.

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Demand and supply dynamics

Alcoa (AA) expects global aluminum demand to grow between 4.25% and 5.25% in 2018. The company expects global aluminum markets to move into a deficit this year. You can define a “deficit” as demand higher than production. Several analysts also expect global aluminum demand to outstrip supply this year.

Meanwhile, despite China curtailing its aluminum smelting capacity, the country’s aluminum exports have refused to die down. In the first two months of 2018, China exported 812,000 metric tons of aluminum, which is almost 25% higher than the corresponding period last year. Plus, China’s aluminum inventory has also risen, continuing with the trend we saw last year. Higher Chinese aluminum exports put pressure on aluminum prices (DBB).

Outlook

But aluminum’s downside looks limited from these levels—unless we see higher trade war fears that could eventually pressure all risk assets, including commodities. In the next part of this series, we’ll see how markets are valuing aluminum producers like Century Aluminum (CENX) after last week’s sell-off.

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