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Aluminium market fundamentals will improve in 2016, with China finally bowing to economic pressure to back off the subsidisation of high-cost aluminium smelting, according to ING Groep NV.
“Demand is very strong,” ING commodities analyst Hamza Khan told Metal Bulletin sister title AMM. “Aluminium consumption, the spot market, physical levels are all very high.”
ING is projecting London Metal Exchange aluminium prices will return to $1,700-1,850 per tonne (77.1-83.9 cents per lb) next year. The three-month contract, which last closed above $1,700 on July 17 at $1,703 per tonne (77.3 cents per lb), currently languishes at $1,435 per tonne (65.1 cents per lb), the lowest level since closing at $1,416.50 per tonne (64.3 cents per lb) on May 29, 2009.
The excessive aluminium supply that is causing the LME price drop is due to Chinese overproduction as well as the flow of metal leaving LME warehouses and entering the market, Khan said. “The demand picture has always been good.[…] It’s been the supply picture that is not.”
Chinese primary aluminium output was estimated at 23.78 million tonnes in the first nine months of 2015, accounting for 55.5% of global production, according to the latest data from the World Bureau of Metal Statistics (WBMS).
However, ING believes that the impact of China will lessen in 2016. “Subsidisation might become less feasible as the economy looks at environmental issues,” Khan said.
Meanwhile, aluminium consumption still outweighs production, according to the WBMS figures, which put consumption at 43.24 million tonnes in the first nine months of this year against production of 42.87 million tonnes.
“In general, the automotive market is extremely competitive,” Jurjen Witteveen, another ING economist, told AMM. Witteveen said that even with some slowdown projected for the global economy as a whole, automotive growth is still expected to be a boon for aluminium producers.
“Of course, someone’s going to enter and be mismanaged,” Khan said about the potential for future overcapacity in aluminium automotive sheet. “But there’s a lot of possibilities for aluminium in cars.”
Cleveland-based Aleris Corp sees room in the automotive sector for all suppliers, but executives at Schiphol-Rijk, the Netherlands-based Constellium NV, have expressed uncertainty about the future of its Muscle Shoals, Alabama, facility.
This report was first published by American Metal Market editorial@metalbulletin.com