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[NEW YORK] The world aluminum market will see a surplus of 326,000 tonnes in 2015, an executive at Alcoa Inc said following a presentation of the company's first-quarter 2015 earnings on Wednesday.
That surplus forecast differed sharply from the aluminum producer's January estimate of a 38,000-tonne deficit for 2015, largely driven by an increase in its estimate for output in top-producer China. "China continues to add capacity," Alcoa Chief Financial Officer William Oplinger said on the call. "Smelters have been reluctant to curtail as prices have recovered." Demand for aluminum remained strong, Oplinger said, noting that global inventories continue to fall and are currently at 66 days of consumption, just above their 30-year average of 61 days.
This robust demand will limit the downside of the fall in regional premiums, he said. In recent years, financing deals that kept aluminum in storage drove those regional premiums to record levels even as futures prices on the London Metal Exchange fell.
Premiums have begun to fall as those deals start to unwind after attracting regulatory and political scrutiny, though Oplinger noted that they are still at historically high levels and would be supported by strong demand. "The industry needs metal to operate," Oplinger said. "So as metal comes out of inventory it is being absorbed through higher demand." In addition, premiums could be supported by a drop in Chinese exports of what Chief Executive Klaus Kleinfeld called "fake semis", or semi-fabricated aluminum shipped by Chinese exporters to avoid an export tax on primary aluminum, only to be re-melted into primary aluminum by the end user.
These exports flooded the market as exporters sought to capitalize on high regional premiums, resulting in abundant supplies. This has in turn pressured those premiums, which could reduce the incentive for Chinese exporters to ship semi-fabricated aluminum, Kleinfeld said.
He added that the exports had caused "annoyance" among Chinese authorities, who may take action to restrict the flow. "I'm optimistic that they stop this abuse," Kleinfeld said.
Alcoa on Wednesday posted a first-quarter profit after a year-earlier loss as revenue rose primarily in its automotive and aerospace businesses.