"There will be an aluminium deficit in 2017," Norsk Hydro CEO Brandtzaeg

World aluminium major Norsk Hydro estimates that in 2016 without China, the world will have a 1.5 million to 2 million metric ton aluminum deficit, compared with a surplus of as much 1 million when including the world’s second-biggest economy. The plunge in price of primary aluminium has caused high-cost producers to reduce output and will probably lead to a better market balance next year and possibly a supply deficit in 2017, observed Hydro Chief Executive Officer Svein Richard Brandtzaeg.

The benchmark three-month price has fallen by almost 50 percent since 2011 and last month hit a six-and-a-half-year low of $1,432 per tonne as the economic slowdown in China continues to weaken demand.

"The need for adjustments is perhaps coming more rapidly than some imagined," said Brandtzaeg. “It depends how they (Chinese smelters) are able to finance the loss-making operations over time,” he said. “That could be more and more challenging, but we have also seen that loss-making aluminum producers have still been able to produce. So they have to finance their operations day-to-day from other cash flow.”

Widely used in construction, packaging and products ranging from cars to aircraft, Hydro has predicted that the demand for aluminium will rise by 4-5 percent next year and by an average 3-4 percent annually over the next decade.

Currently, the industry is struggling with a production surplus of the metal used in everything from soda cans to car production. Yet a slowdown in the Chinese economy is putting pressure on local producers that are partly responsible for creating the surplus, while at the same time easing global demand.

He declined to give a forecast for future prices but said the market balance was about to change as high-cost producers are forced to stem losses.

Last week a group of 14 Chinese smelters pledged to close another 500,000 tonnes of capacity by the end of the year, bringing the total volumes shut in 2015 to just under 5 million tonnes.

"The closures that have been announced will lead to a natural adjustment and our analysis shows markets will normalise and move to a better balance in 2016 than what's been the case in 2015. Of that we are pretty certain," Brandtzaeg said.

"If the rebalancing continues, there will be an aluminium deficit in 2017 and the following years. But that's assuming the announced closures are carried out," he added. ($1 = 8.7224 Norwegian crowns)