Alcoa foresees an aluminium surplus despite steady demand

Alcoa Inc. is very optimistic about the demand for aluminium in the year 2014, according to its initial forecast released with its results.

It expects that demand for white metal will increase by 7% this year, keeping a match with the growth of last year.

Though the forecast says China’s demand will be slow keeping in mind the country’s shift in focus from investment-led economic growth. But regions such as Europe and North America are expected to pick up.

In 2014, it is expected that China’s demand growth would be 10%, compared to 12% in the last year, while North America will make a rise from 4% to 5% and Europe goes up from minus 1% to a positive 1% growth. The main sectors that will drive growth are aerospace, automotive, beverage can packaging and commercial construction.

In addition to demand, Alcoa provides an insight to the supply-side. In alumina, the forecast indicates a large surplus of approximately two million tonnes, in comparison to 636,000 tonnes in last year. Most of this is due as new capacity of aluminium are yet to come up in China and many other countries bringing a rise in existing capacity. It will also have an impact on the aluminium forecast where a deficit of 400,000 tonnes in the previous year is expected to translate to a surplus of 106,000 tonnes.

A surplus situation is not considered good for aluminium prices. Another risk is if the output is affected because of coal availability and raw material in India or due to Indonesia’s ban of ore exports. These will become clearer in the year 2014.

In 2013, Aluminium prices were quite low. But regional metal premiums still continue to be high and have recovered in the December quarter, in countries like US and Europe. That’s again good news for the metal producers. But everyone now waits for April, when London Metal Exchange’s new warehousing rules will come into force. It is expected that they will speed up deliveries and their impact on prices as well as premiums will also be watched closely. If prices fall any further, it could be tough year for the aluminium companies.