The price of aluminum was under pressure during the first quarter of 2019, driven mainly by seasonal weak demand and the negative impact of trade wars and tensions between the US and China, which significantly impacted growth prospects in key aluminum consuming regions and industries industry, in particular the automotive industry.
Rusal believes that these trends will continue to have a negative impact on the price of aluminum in the second quarter of 2019, despite the possibility of a deal between China and the United States, as well as the stabilization in March of a number of economic indicators in the United States and China.
Consumption of aluminum
In the first quarter of 2019, aluminum consumption outside of China increased by 1.5 percent compared to the first quarter of 2018 to 7.38 million tonnes. At the same time, demand for aluminum in Europe remained weak and grew by only 0.9 percent compared to the first quarter of 2018 - to 2.36 million tons. Aluminum consumption in North America increased 1.5 percent compared to the first quarter of 2018 to 1.73 million tonnes. In China, demand is slowly recovering and grew by 1.5 percent over the year - to 8.48 million tons.
Rusal analysts expect global aluminum demand to grow by about 3 percent in 2019.
In Q1 2019, aluminum production outside of China declined 1.3 percent from the previous quarter to 6.86 million tonnes. Taking into account the current aluminum price and data on average market premiums, approximately 50 percent of aluminum production capacity outside China and 20 percent in China is estimated to be unprofitable. Despite these circumstances, the restart of aluminum production in the USA continues. Combined with increased aluminum production capacity in the Middle East and Russia, it is possible that aluminum production outside of China will grow in the second quarter of 2019.
Primary aluminum production in China in the first quarter of 2019 was 8.63 million tonnes, down 1.2 percent from the same period last year (YoY). The reduction in capacity exceeded 800 ktpa during the first quarter of 2019, and low market demand slowed the commissioning of new capacity as well as the restart of idle capacity. At the same time, there are new facilities with a capacity of up to about 2.5 million tons, ready to enter the market, as well as idle facilities with a capacity of up to a million tons, which can be restarted.
Combined with declines in aggregate costs, in particular in alumina and coal prices, this may indicate that the recent rise in raw material prices in China is short-term, and that there is some risk of further price declines.
Exchange stocks of aluminum
In the first quarter of 2019, aluminum stocks in LME warehouses decreased by 200 thousand tons - to 1,074 thousand tons. The volume of aluminum at the LME, for which warrants have been issued, remains at the level of 723 thousand tons. After a surge in the middle of the first quarter of 2019, China's regional stocks resumed their decline in March 2019 and fell 3.8 percent by the end of the month to 1.69 million tons.
In the first quarter of 2019, exports of primary aluminum and semi-finished products from China increased by 14 percent compared to the APPI and remain at an unusually high level due to low aluminum consumption in China. This trend could continue in the second quarter of 2019 as domestic demand remains subdued and aluminum deficit outside China persists.
The price of alumina in most regions will continue its downward trend, but the correction may be limited by the continued high cost of alumina production, especially in China.