global aluminium market overview 2017 - · pdf file2 2 lme price developments 3 aluminium...

Global Aluminium Market Overview 2017

Julia Du

Consultant, CRU Analysis

2

LME price developments 2

Aluminium supply, demand and market balance 3

LME price forecasts 4

Summary 5

Global economic overview 1

Presentation structure

3




Summary 5



4

World Economic growth: developing Asia drives growth % change in real GDP year-on-year

Europe

+2.0% North

America

+2.3%

India

+7.0%

World

+2.9%

China

+6.8%

Asia &

Australasia

+4.3%

S. Korea

+2.8%

South &

Central

America

+0.6%

Middle

East

+2.2%

Japan

+1.4%

Taiwan

+2.2% Africa

+3.1%

> 6%

4% – 6%

2% – 4%

0% – 2%

-2% – 0%

< -2%

Russia

+1.2%

5



Premiums and LME price forecasts 4

Summary 5



6

Weak US dollar and global aluminium deficit boost LME price

1.00

1.05

1.10

1.15

1.20

1.25

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17

US$/euro

Exchange rate: US$ per euro

US$/€

Data: Bloomberg, CRU

40

42

44

46

48

50

52

54

56

58

60


Brent crude oil

Energy prices Brent $/barrel

Data: EIA, CRU

0

500

1000

1500

2000

2500

3000

3500

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17

LME Asia LME North America LME Europe

LME aluminium stocks LME aluminium stocks by region, '000 tonnes

Data: LME, CRU

-200

-150

-100

-50

0

50

100

150

200

250

300


Fake semis arb to Asia Fake semis arb to US

China fake semis export arbitrage Fake semis export arbitrage, $/t

Data: LME, SHFE, CRU

7

LME price moves higher in H2 2017

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500

2,600

Jan-1

6

Mar-

16

Mar-

16

Apr-

16

May-1

6

Jun-1

6

Jul-16

Aug-1

6

Sep-1

6

Oct-

16

Nov-1

6

Dec-1

6

Jan-1

7

Feb-1

7

Mar-

17

Apr-

17

May-1

7

Jun-1

7

Jul-17

Aug-1

7

Sep-1

7

LME 3-month alumininium price, $/t (LHS) SHFE cash aluminium price, RMB/t (RHS)

LME 3-month aluminium price and SHFE aluminium price

Data: CRU

8



Premiums and LME price forecasts 4

Summary 5



9

China production: 1.35Mtpy of closures to occur at Hongqiao

101kt 300kt

92kt 200kt

335kt 800kt 180kt 430kt

554kt 1,350kt

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jinjiang Qingdao Antaixin (Xinjiang Jiarun)

East Hope Xinfa Hongqiao

Making sense of Chinese closures Production by producer, '000t

Data: CRU

Production, 2017

Production, 2018

Closure impact, 2017

Closure impact, 2018

Chinese aluminium capacity closures in 2017 and 2018

1. Supply-reform

Hongqiao Group, 1.35Mtpy

Jinjiang Group, 300,000tpy

Xinjiang Jiarun, 200,000tpy

Xinjiang East Hope, 800,000tpy

Xinfa Group, 530,000tpy

2. Winter closures

Required capacity closure, 819,000tpy

Impact on output: 137,000t in Q4 2017 and 172,000t in Q1

2018

18.0% 19.0%

11.8%

4.0% 3.0% 2.6%

3.9%

8.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

China aluminium production y-o-y % change

Data: CRU

10

China production: production growth is expected to return in H2 2018

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

China aluminium production Quarterly production, ‘000 tonnes

Data: CRU

Ramp-up of over 2.2Mtpy

new state owned

aluminium capacity Over 3Mtpy of

operational

capacity will close

by the end of 2017

11

World ex. China production: US aluminium production to increase as

restarts begin

1.1% 1.4% 1.4% 1.3%

2.8%

5.2%

4.3%

3.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

World ex. China aluminium production y-o-y % change

Data: CRU

920

940

960

980

1,000

1,020

1,040

1,060

1,080

1,100

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

North America aluminium production Quarterly production, ‘000 tonnes

Data: CRU

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000 Central and South America

Other Asia

Africa

Australasia

India

North America

Middle East

Europe

World ex. China aluminium production, 2016-2018 Quarterly production, ‘000 tonnes

Data: CRU

Aluminium capacities are scheduled to restart in US

1. Warrick

Alcoa has announced that it will restart three of the five

potlines at its 269,000tpy Warrick smelter in Indiana by Q2

2018.

2. New Madrid

The 101,000tpy of idle capacity will restart at the fully idled 276,000tpy New Madrid smelter in Missouri in early 2018.

3. Hawesville and Mount Holly

Century Aluminium will restart a combined 265,000tpy at its Hawesville and Mount Holly, US smelters in 2019.

12

China consumption: demand growth set to soften as government policies

begin to dampen construction sector growth

9.1%

8.1%

6.3%

7.2%

6.0%

5.1% 5.0% 5.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

China aluminium consumption y-o-y % change

Data: CRU

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

China aluminium consumption Quarterly consumption, ‘000 tonnes

Data: CRU

0

2

4

6

8

10

12

14

16

IP Automotive Construction

2016 2017 2018

Data: Oxford Economics, CRU

China industrial, automotive and construction output forecasts % y/y

-10

0

10

20

0

5

10

15

20

25

Aug-16 Nov-16 Feb-17 May-17 Aug-17

Investment Residential Starts

Data: CEIC, CRU

Residential starts and infrastructure & utilities investment LHS: Infrastructure investment, % y/y

RHS: Residential starts, % y/y

13

World ex. China Consumption: Demand in US and Europe growing at

steady pace

3.3%

4.1% 3.7%

4.0% 3.6% 3.6% 3.6%

3.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

World ex. China aluminium consumption y-o-y % change

Data: CRU

-6

-4

-2

0

2

4

6


2016 2017 2018


United States industrial, automotive and construction output forecasts % y/y

0

1

2

3

4


2016 2017 2018


Eurozone industrial, automotive and construction output forecasts % y/y

9.5%

7.0% 7.1%

3.8% 3.7% 2.8%

1.8% 2.4% 2.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2016 2017 2018

India

Europe

North America

y-o-y % change India

y-o-y % change Europe

y-o-y % change North America

Estimated primary aluminium demand growth in key regions, 2016-2018

, ‘000 tonnes y-o-y % change

Data: CRU

14

World ex. China Consumption: demand is expected to reach 29.4M tonnes in

2017

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Australasia Africa Central and South America India Middle East North America Other Asia Europe

World ex. China aluminium consumption, 2016-2018 Quarterly consumption, ‘000 tonnes

Data: CRU

15

Market balance: Global market in deficit for 2017 on larger World ex. China

deficit

-500

-400

-300

-200

-100

0

100

200

300

400

500

Aug-15 Feb-16 Aug-16 Feb-17 Aug-17

World ex. China balance

Aluminium market balance

Aluminium market balance, '000 tonnes

Data: CRU

-500

-400

-300

-200

-100

0

100

200

300

400

500


China balance


Aluminium market balance, '000 tonnes

Data: CRU

-700

-500

-300

-100

100

300

500


Global balance


Global aluminium market balance, '000 tonnes

Data: CRU

-50

-25

0

25

50

75

100

125

150


China net exports

China aluminium net exports

Aluminium trade, '000 tonnes

Data: CRU

16

Market balance: Lower China primary net exports lead to larger World ex.

China deficit

-150

-100

-50

0

50

100

150

200

250

Apr-17 May-17 Jun-17 Jul-17 Aug-17

Fake semis arb to Asia Fake semis arb to US

China fake semis export arbitrage Fake semis export arbitrage, $/t

Data: LME, SHFE, CRU

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

1,400

1,600

1,800

2,000

2,200

2,400

2,600

Jan-1

6

Mar-

16

Mar-

16

Apr-

16

May-1

6

Jun-1

6

Jul-16

Aug-1

6

Sep-1

6

Oct-

16

Nov-1

6

Dec-1

6

Jan-1

7

Feb-1

7

Mar-

17

Apr-

17

May-1

7

Jun-1

7

Jul-17

Aug-1

7

Sep-1

7

LME 3-month alumininium price, $/t (LHS)

SHFE cash aluminium price, RMB/t (RHS)

LME 3-month aluminium price and SHFE aluminium price

Data: CRU

17

Market balance: Chinese stocks continue to rise

0

200

400

600

800

1000

1200

1400

1600

1800

Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

Gongyi Tianjin Hangzhou Nanhai Wuxi Shanghai

China aluminium stocks China reported aluminium stocks, '000 tonnes

Data: SHFE, CRU

0

200

400

600

800

1000

1200

1400

1600

1800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Range 2010-2016 Average 2010-2016 2017 actual

China reported aluminium stocks '000 tonnes

forecast

Data: CRU, SHFE

0 500

1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000

Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

Japan port stocks Producer stocks total LME total

World ex. China aluminium stocks Ex. China reported aluminium stocks, '000 tonnes

Data: LME, CRU

18

Market balance: The Chinese aluminium market will see a 1.9Mt surplus in

2017 even after supply-reform and winter closures

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

2016 2017 2018

China World ex. China

China and World ex. China Aluminium market balance Aluminium market balance, '000 tonnes

Data: CRU

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

2016 2017 2018

World

Global Aluminium market balance Aluminium market balance, '000 tonnes

Data: CRU

19




Summary 5



20

LME 7 Signals: Prices could head higher in the short term Key LME drivers – bullish, neutral or bearish

CRU's Seven Price Signals (forecast)

Bull/Bear

/Neutral

1 month

ahead

Next 6

months Short Term View

US Dollar: no sign of a bottom yet Bullish

Uncertainty continues to put pressure on the USD

despite macro data meeting expectations. The

currency was shaken by Hurrican Harvey and renewed

tensions with North Korea.

Energy prices: mixed impact from Hurrican Harvey Neutral

Athough Texas represents 30% of US refining

capacity, refineries closures shouldn’t have a great

impact on prices. If anything it would mean crude oil

inventory would accumulate outside Texas which is

bearish.

Chinese macroeconomic data: marginally missed expectations Neutral

This past few weeks we had data on PMI, imports,

exports, retail sales and industrial production. They all

missed expectations but only marginally. Latest

Factory PMIs released on 31 Aug suggest a pick-up.

Chinese Export Arbitrage: Exports likely to slow down Bullish

Chinese export arbitrage for fake semis turned

negative in early August and remains so today. This is

the first time since December last year. At the same

time the window for importing SHFE deliverable brands

into China is close to reopening.

Investors: Renewed buying as prices reach multi year highs

but selling also intensifiesNeutral

The recent break of key technical levels triggered fresh

buying from trend followers. Although prices are

currently being heavily challenged by the 2014 peak a

u-turn appears unlikely. A rise of new short positions in

the last week should constitute a warning.

Visible stocks: the threat is still there despite the supply cuts Neutral

Shandong shook the market with a notice to close

3.2Mtpy of illegal capacity, but inventories in China

continue to increase. SHFE stocks are now close to

500,000t while total inventories are over 1.5Mt.

Aluminium Market: large Chinese surplus for 2017 NeutralCRU forecasts a Chinese market surplus of 1.9Mt in

2017, even after the supply cuts announced by

Shandong in early August.

21

Price forecast: Price upgrade for Q3 and Q4 but cautious view ahead

$1,582

$1,715

$2,080

$2,200

$2,300 $2,400

$2,300 $2,300

$1,960

$1,925

$1,850 $1,800

$1,750

$1,800

$1,633

$1,856

$1,915

$2,000 $2,050

$1,980

$1,950

$1,920 $1,948

1500

1600

1700

1800

1900

2000

2100

2200

2300

2400

2500

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

High Case Forward curve, August 31, 2017 Low Case Base case

LME 3-month price forecast

$/t

Data: CRU, LME

22




Summary 5



23

Summary

Over 3Mtpy operational capacity in China will close by the end of 2017 2

3

4

World ex. China aluminium deficit has increased for 2017 5

Asian countries will drive global GDP growth in 2017 1

LME 3-month price will remain robust in H2 2017, but cautious view ahead 6

Chinese aluminium demand growth is set to soften in 2018

1.9M tonnes surplus in China is expected in 2017 even after supply reform

Thank you for listening!

Julia Du Consultant, CRU Analysis +44 (0) 207 903 2080 [email protected]

global aluminium market overview 2017 - · pdf file2 2 lme price developments 3 aluminium...

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