The global aluminum market will remain short of supply despite bullish signs of demand and supply restrictions, market participants said Monday on a panel discussion at S&P Global Platts' Aluminum Symposium in San Diego.
Hydro Aluminum Metals USA expects demand to grow 2-3% this year because of continued growth in the transport segments being offset by a gradual slowdown in China and a moderated appetite in Europe and the US. On the other hand, supply should increase 3-4% based on the expected US restarts and Chinese ramp-ups.
"This deficit situation has been leading to a plunge in the inventory levels outside China, which could fall to the levels of 2007-2008 this year," company president Matt Aboud said during his presentation.
Recent Chinese ramp-ups added 6 million mt of new capacity in a five-year period, said Hui Shan, vice-president of Global Investment Research at Goldman Sachs. "These investments have been focused on low-income provinces that the Chinese government wants to boost through the industrialization," she said, adding that these areas don't have the air-quality problems seen in other saturated regions, such as Beijing.
But "the Chinese have shown discipline in restricting production -- 2018 was a year of supply-side reforms," said Paramita Das, General Manager, Global Marketing and Development at Rio Tinto.
Shan noted that although the depressed aluminum prices have led to lower margins, cutting production "is not an easy decision to make, especially when input costs are expected to decline."
The three panelists agreed that the world deficit will be mostly seen outside of China, as it will likely see a balance between supply and demand.
The insufficient growth in supply to meet demand could be partially explained by the current high alumina prices, which are affecting smelters' profitability, said Aboud. But alumina could be on the verge of a bearish trend that will allow Chinese smelters to maintain their current production levels, Shan said.
Most of the new supply is being built in China, which has higher costs of production, Aboud said, adding "the elevated alumina price will continue to pressure profitability in smelting."
