2017 ISRI Commodities Roundtable Forum: 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, adding that China’s surplus would be larger at 2.2 to 2.4 percent.

Aluminum demand is expected to grow globally, Estel said, and China is considered to be the greatest force behind that growth. The country’s demand for aluminum is projected to grow as much as 7 percent for the year.

At 33.9 million tons, China accounts for more than 50 percent of world demand for primary aluminum, Estel said. The country accounts for two-thirds of global demand growth, which stands at 5 percent. China’s transportation and construction sectors are the largest consumers of the metal, he added.

India’s aluminum demand is projected to grow between 6 percent and 7 percent for the year, while Europe should post growth in the range of 3.5 to 4 percent, Estel said. He described Europe’s growth as being “very high” for a developed area.

North America’s growth, however, will only range from 1.5 to 2 percent, Estel said, with production of cars and light trucks being relatively flat.

Ryan Olsen, vice president of business information and statistics for The Aluminum Association, Arlington, Virginia, said there was 36.4 billion pounds of aluminum demand globally in 2016.

Olsen said the transportation sectors is the largest market for aluminum at 39 percent. Within North America, the sector is forecasted to increase its consumption of this material, according to a study from Michigan-based Ducker Worldwide, with total aluminum content expected to grow from 397 pounds per vehicle (PPV) in 2015 to 565 PPV by 2028, representing 16 percent of total vehicle weight. Olsen added that total aluminum used in North American vehicles will grow to nearly 9 billion pounds by 2028.

Mike Southwood, who works out of Pittsburgh for London-based CRU Group, said aluminum demand in North America is “reasonably positive.” He added that demand for semifabricated aluminum continues to growth, with 2 percent growth expected this year.

North America produced 11 billion pounds of aluminum in 2016, which was only 16 percent of overall production, Olsen noted. Secondary production accounted for 84 percent of overall production in the United States that year, he added, noting that only five smelters currently 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 a number of supply reforms that target the aluminum sector, Estel said. The country’s 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, ranging from November 2017 through March 2018. Additionally, the country’s National Development and Reform Commission (NDRC) plans to curtail production at smelters without operating licenses, Estel said, adding that the move could affect 3.9 million tons of production in that country. The two actions together could affect 6 million tons of Chinese production, or 10 percent of the global market.

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

In addition to aluminum production overcapacity, Olsen said overcapacity exists downstream as well. Flat roll capacity, for instance, is expected to grow by 20 million tons by 2020.

While Estel said aluminum scrap imports to China are up relative to last year, the country is exporting more semis than it is taking in scrap.

Southwood 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 of over in 2017, with additional growth of 2 percent expected in 2018.

Total U.S aluminum semis demand is firm, according to Southwood, in light of increasing use in autos and building and construction. He added that rolled products demand is growing despite “recent disappointments” in the transportation and construction markets.

Aluminum can stock imports to the U.S grew 84 percent in the first half of 2017, according to Southwood’s presentation, with imports from China, which accounted for 74 percent of total can stock imports, increasing 41 percent. Southwood predicted this trend would result in less demand for UBCs (used beverage cans).

Regarding China’s proposed restrictions on scrap imports into the country, 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, Southwood said they are up so far in 2017. However, he notes that China’s internal generation of aluminum scrap is growing, having increased 2.2 million tons since 2010.

He predicted the London Metal Exchange price for aluminum to increase in the second half of this year, propelled by the closure of smelting capacity in China.

The 2017 ISRI Commodities Roundtable Forum was Sept. 6-8 at the Marriott Chicago Downtown Magnificent Mile.