Aluminum’s mixed fundamentals

While aluminum demand is forecasted to increase, overcapacity issues in China remain a reason for concern, said Andrew Estel, vice president of strategic planning and analysis for Alcoa, based in Pittsburgh. Estel was among the speakers addressing attendees of the Aluminum Roundtable during the 2017 Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable Forum in Chicago in early September.

He predicted a 1 percent, or 630,000 ton, global surplus of aluminum for the year.

At 33.9 million tons, China is responsible for more than 50 percent of world demand for primary aluminum, Estel said. China’s transportation and construction sectors are the largest consumers of the metal, he added.

Ryan Olsen, vice president of business information and statistics for The Aluminum Association, Arlington, Virginia, said North America produced 11 billion pounds of aluminum in 2016, which was only 16 percent of overall production. Secondary production accounted for 84 percent of overall U.S. production, he added, noting that only five smelters operate in the U.S.

Primary production of aluminum has increased globally, Olsen said, driven by China. He said China’s production “fundamentally impacted the global and U.S. aluminum industry.”

China has enacted many supply reforms targeting the aluminum sector, Estel said. Its Ministry of Environmental Protection (MEP) has targeted 28 cities for reform and has required a 30 percent curtailment in aluminum smelting capacity during the winter heating season from November 2017 through March 2018. Also, the country’s National Development and Reform Commission (NDRC) plans to curtail production at smelters without operating licenses, he said, adding that the move could affect 3.9 million tons of production. The two actions together could affect 6 million tons of Chinese production—10 percent of the global market.

“There is the potential for very meaningful reform,” he said, though Estel added that this was far from guaranteed.

Mike Southwood, who works out of Pittsburgh for London-based CRU Group, said more scrap is expected to be used in the production of semis this year. He said direct use of scrap is forecasted to grow by 4.7 percent year over year in 2017, with additional growth of 2 percent expected in 2018.

Regarding China’s proposed restrictions on scrap imports, Southwood said 70 to 80 percent of the aluminum scrap exported to China from the U.S. is zorba, which falls under Category 6 scrap and not the Category 7 scrap targeted by China’s MEP.

While aluminum scrap exports to China declined in 2016, he said they are up so far in 2017.

The 2017 ISRI Commodities Roundtable Forum was Sept. 6-8 in Chicago.