By Kirk Maltais
New York 11/10/2016 - Alcoa Inc has nearly halved the scale of its previously projected aluminium deficit for 2016, maintaining its assertion that the market will be in arrears by year-end but factoring in restarts of curtailed Chinese capacity.
“In China, the average [Shanghai Futures Exchange] price this quarter has increased 316 [yuan, or about $47], which has motivated slightly faster restarts and expansions than we had forecast,” Alcoa executive vice president and chief financial officer William Oplinger said during an October 11 earnings call.
New York-based Alcoa is now forecasting that aluminium supply will end 2016 at a deficit of 615,000 tonnes, down from the company’s original prediction of a 1.2-million-tonne deficit.
Alcoa noted that global inventory levels dropped to 54 days in September from a 2009 peak of 108 days and thinks that the deficit in the rest of the world will outweigh the surplus of aluminium from China, even if restarts come online at a faster clip than expected.
Meanwhile, Alcoa’s drive to cut its operational costs has been successful, with the company's alumina facilities now operating in the 17th percentile for cost and its primary aluminium operations placing in the 38th percentile.
These rankings either meet or exceed the company’s previously stated goals and have positioned the upstream division—to be named Alcoa Corp once the company splits on November 1—to report a profit; after-tax operating income for the company's primary metals division swung to a $56-million profit for the quarter from a $59-million loss in the same period a year ago.
However, Alcoa is most excited by the anticipated growth in bauxite and alumina demand. The company is forecasting an alumina deficit of 1.6 million tonnes, driven by the curtailment of Sherwin Alumina Co LLC’s refinery in Gregory, Texas, as well as an increase in alumina consumption spurred by the rise in Chinese smelting capacity.
Alcoa sees global alumina demand growing 5% year-on-year to 114.9 million tonnes in 2016, while supply expands 1% to 113.2 million tonnes.
The company has previously said it hopes to capture upstream growth through the sale of bauxite into China.
Other experts agree that Chinese suppliers are bringing smelting capacity back online quickly and will require alumina to power the push. Chinese suppliers have taken 600,000 tonnes of capacity offline this year, but have brought 2.4 million tonnes back online and count another 2.7 million tonnes under construction, Alan Clark, director of Adelaide, Australia-based CM Group noted.
Alcoa reported third-quarter net income of $166 million.
This article also appears in American Metal Market as part of its daily nonferrous news coverage (www.amm.com). AMM and FastMarkets are part of the Metal Bulletin Group, a global Price Reporting Agency.