The debate between aluminium surplus and aluminium deficit: LME seminar

At the London Metal Exchange seminar two distinct and diametrically opposite opinions came forth regarding the global aluminium situation – whether it is in deficit or surplus?

Nic Brown of Natixis claimed that the market was in deficit which is expected grow wider in the next two three years. David Wilson of Citi Bank on the other hand stated that the market is in surplus and expected to stay that way till 2017 at least.

The reason for these two contradictory theories is two prime factors – lack of conclusive counting system and China.

Calculating the demand and supply statistics of any industrial metal is an incredibly difficult task and things get more complicated when it comes to aluminium.

Unlike International Study Groups that cover the statistical reports for the other metals like copper, zinc, lead and nickel markets, there is no body of people doing the same for aluminium. There is the International Aluminium Institute (IAI) that releases monthly production figures but that is only for the primary metal leaving scrap aluminium completely out of the statistical picture.

The second major issue and perhaps the bigger issue is of course China. Like much of the happenings in the secretive mainland, the world is never quite sure what is happening there and being the highest consumer and producer in the industry, there contribution gets the make or break vote.

When the entire aluminium industry outside China was cutting back production, with daily output falling from 70,000 tonnes in December 2011 to 66,500 in September 2014, in China production has grown by an annual 7.2 million tonnes in the same period. Even then the figures are only tentative in case of China.

So while the West is in deficit, the East is in oversupply. Export has also increased in China as they are making minimal transformation to the primary metal which is good enough to avoid export taxes but good enough to be re-smelted and used as a primary metal in the west. In this way, China is slowly filling up the gap created in the western world through their ‘thinly-disguised’ metals.