Trump Trade War - Aluminium Prices under Double Pressure
16-08-2019 11:12:40 AM - 1241
Aluminium prices hit their lowest in about a month last Friday (USD 1749 per tonne cash LME) on fears of weak consumption after Chinese data showed shrinking factory activity. The grey metal has been this year’s second worst performer among base metals after tin. Average aluminium prices for the first 7 months this year was USD 1821 per tonne, compared to an average of USD 2193 per tonne for the same period last year.
Global aluminium production fell by 0.5% in the first half of this year, to 31.6 million tonnes, according to the International Aluminium Institute. This is not an alarming development, but the fact is that global output hasn’t registered a year-on-year decline since the Global Financial Crisis in 2009. Chinese output fell by 3.1% in June vs. June last year, and by 0.4% over the first six months of the year, according to the IAI.
Marching to the same drum, Alcoa lowered its global demand forecast in July for the second time in three months, expecting demand growth of 1.25-2.25% this year. It is substantially down from the 4 – 4.5% seen in previous years. In this market environment, only a swift resolution of the trade dispute would lift aluminium and other base metals prices higher.
The global market remains amply supplied other than the official market deficit (“on paper”) of at least half million tonnes for the year. This is an insignificant number compared to the 3 million tonnes of Chinese exports registered in the first half of the year. Alcoa estimates the global inventory of the refined metal at 10.7 million tonnes, about half of which are considered “unreported stocks”. About 2.5 million tonnes of the supply that’s not tracked by exchanges are located in China, according Alcoa.
In the second half of the year ex-China aluminium production will increase due to the ramping up of production in Brazil’s Albras smelter. The plant has an annual capacity of 450,000 tonnes, but has been operating at 50% of that rate since April 2018 due to the reduction in output at the Alunorte alumina refinery. Norsk Hydro, which owns both plants, is now returning them to full capacity after a resolution of an environmental dispute with the Brazilian authorities. The ramp-up of the smelter is expected to be complete by the end of the third quarter.
In Canada, the 18-month long lock-out of unionised workers at the Becancour smelter has ended. Production at the plant slumped from 438,000 tonnes in 2017 to 136,000 tonnes last year, with Q2 2019 output running at an annualised rate of just 65,000 tonnes, according to Reuters. The Alcoa/Rio Tinto smelter expects to return to full capacity in the second quarter of 2020.
Global production will be reduced by some 85,000 tonnes/year after Bosnia and Herzegovina’s Aluminij Mostar smelter stopped production on July 10. The plant’s nameplate capacity is 130,000 tonnes/year while the casthouse can churn out 165,000 tones/year. There are very low chances the smelter will restart production in 2019, aside some small production at the casthouse.
Finally, Alcoa said it has reached an agreement to sell its La Coruna and Aviles plants in Spain to Swiss private equity company Parter Capital Group. This will most likely result in the restart of the smelters soon, which have a combined operating capacity of 180,000 tonnes per year. The plants were curtailed in February and maintained in restart condition.
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