Alcoa lowers its aluminium demand projections for 2019; projects an aluminium deficit and an alumina surplus

Alcoa this week reported a net loss of $402 million and negative free cash flow of US$7 million on its $2.7 billion of Q2 2019 revenue. Divesting of interest in the Ma'aden Rolling Company (MRC) in Saudi Arabia costed the company dearly. Results were negatively affected by lower alumina and aluminium prices. The results indicate a tough period for the aluminium sector globally and in the U.S. for the rest of 2019.

Despite the falling inventories, Alcoa expects lower demand growth worldwide for aluminium mostly driven by trade tensions and macroeconomic headwinds, the company said in its earning call on Wednesday. The results have raised the growing concern about aluminium demand and the slowing economic growth.

Alcoa lowered its global aluminium demand growth projection for 2019 to a range of 1.25% to 2.25% from a previous estimate between 2% and 3%. The company statement attributed it to “lower demand in both China and the world ex-China due to trade tensions and macroeconomic headwinds.”

Aluminum inventories are expected “to reach levels not seen in more than a decade, since before the global financial crisis in 2008” this year, the company statement said.

Alcoa projects a deficit aluminium market and a surplus alumina market for 2019. Bauxite market is projected to have a global surplus between 13 million and 17 million metric tonnes from the previous quarter’s projection of 8 million to 12 million tonnes. The surplus will be driven by production expansion in Guinea and Southeast Asia despite higher demand from China. These will put pressure on alumina and aluminium prices for the rest of 2019.

S&P projects aluminium price will settle at about US$ 1,800/t for the rest of 2019 despite the projection of 1.5-1.7 million tonnes of deficit and lower global inventories because of global trade tensions.  

S&P maintains a price projection of US$2,000/t and US$2,100/t for 2020 and 2021. SP expects more aluminium capacity cut in the medium term due to losses faced by the producers on the current price of about US$1,750 per tonne. This will help recovery of aluminium prices in 2020. This will be further supported by slowing but continued global economic growth, further capacity cut and slower growth of smelting capacity in China.