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 such as the automotive industry.
We believe 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.
During the first quarter of 2019, global aluminum demand increased 1.5% year-on-year to 15.87 million tonnes, global primary aluminum demand outside China increased 1.5% and amounted to 7.4 million tons.
The global aluminum deficit increased 1.7 times to 0.5 million tonnes compared to the fourth quarter of 2018, which was a key factor behind the decline in aluminum inventories.
In China, demand is slowly recovering, and in the reporting period, it grew by 1.5% to 8.49 million tons.
In the first quarter of 2019, demand for primary aluminum in Europe increased by 1.0% to 2.4 million tonnes due to a slowdown in economic growth. The slowdown in Germany's export-oriented economy had the greatest impact on aluminum demand, as a sharp drop in international trade volumes cut expected GDP growth in half, to 0.5%.
North American demand for primary aluminum rose 1.5% to 1.7 million tonnes, despite a weakening construction and auto industries. U.S. construction volumes fell to a 12-month low in the first quarter of 2019, and US passenger car sales fell 3.2% from the first quarter of 2018.
The increase in demand for primary aluminum is primarily due to the increase in the use of aluminum in the automotive industry, in particular, in the structural elements of the car body.
According to the results of the three months of this year, the demand for primary aluminum in Asia increased: by 4.5% (up to 0.5 million tons) in India and by 1.3% (up to 1.6 million tons) - in other regions Asia. India remained one of the fastest growing economies with strong demand for aluminum, despite a slight slowdown in growth. In Japan, strong domestic demand, in contrast to low exports, continued to drive economic growth. The Association of Southeast Asian Nations (ASEAN) saw an increase in industrial production in March after two months of decline.
Domestic demand for primary aluminum in the first quarter in Russia and the CIS countries was low compared to last year due to the high base and the adaptation of the economy to the increase in VAT in Russia, which affected the purchasing power of consumers. In absolute terms, market performance was close to 2017 levels.
In the first quarter of 2019, aluminum production outside of China decreased by 1.3% qoq to 6.86 million tonnes. Taking into account the current aluminum price and data on average market premiums, approximately 50% of the aluminum production capacity outside China and 20% in China is estimated as unprofitable.
Despite these circumstances, the restarts of aluminum production in the United States continue, and combined with the growth of aluminum production in the Middle East and Russia, aluminum production outside of China could 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% year-on-year. The reduction in capacity exceeded 800 thousand tonnes per year during the first quarter of 2019, and low market demand slowed down the commissioning of new capacity, as well as the restart of idle capacity. At the same time, there are new capacities in the amount of up to 2.5 million tons, ready to enter the market, as well as idle capacities in the amount of up to 1 million tons, which can be restarted.
Combined with lower aggregate costs, in particular 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.
According to the results of the first three months of this year, the stocks of aluminum 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, Chinese regional stocks resumed their decline in March 2019 and fell 3.8% by the end of the month to 1.69 million tons. During this period, exports of primary aluminum and semi-finished products from China grew by 14% compared to the same period last year and remains at an unusually high level due to