Singapore 05/08/2016 - The aluminium price is unlikely to remain above $1,700 per tonne on a sustainable basis until 2018 as the market is expected to push further into surplus in 2017 on Chinese production restarts, said ANZ Research.
Earlier this year, China had announced it would curtail about 4.5 million tonnes per year of smelting capacity. “[But] recent data suggest the capacity closures announced in late 2015 appear to have reversed,” the bank said in a report on Friday.
The pace of restarts in the Chinese aluminium industry is likely to quicken in the second half - there were nearly 200,000 tonnes per year of announced capacity restarts in China in the second quarter, with another 400,000 tonnes per year due to be restarted in the third quarter, ANZ estimates.
Chinese June aluminium production at 2.7 million tonnes was down three percent year-on-year, but on a sequential and production-per-day basis, its output at 90,000 tonnes per day was the highest since September 2015 (91,000 tonnes per day), and relative to a low of 75,000 tonnes per day in January-February this year, it noted.
“The growth in Chinese output undoes the good work that capacity closures elsewhere around the world have been achieving,” ANZ said.
The expected acceleration in Chinese production and exports in the second half will likely lead to greater availability of metal globally – inventory is already building up in Asian warehouses as producers in India ramp up capacity and in North and South American ports, it added. At the same time, capacity is also being ramped up in India and Malaysia.
While LME aluminium stocks have declined recently, this is largely due to warehousing regulation as the metal is moved to off-exchange warehouses while some have been offered to end-users reflecting in a sharp fall in physical premiums, ANZ said.
Furthermore, the macro background remains cloudy as recent data suggest fading growth momentum in China with the property sector seemingly having peaked, it added.
“As such, we expect aluminium prices to continue to underperform the rest of the base metals sector in the second half of the year,” it said.
The bank has maintained its end of year price target for aluminium at $1,660 per tonne.
The London Metal Exchange three-month aluminium price was last at $1,637 on Friday, up $14.50 from the previous day’s close.