the global aluminium market outlook - société de la … global aluminium market outlook anil...

The Global Aluminium Market Outlook

Anil Patel, CRU Aluminium

Aluminium Valley In Business Trade Show 2017

Québec, May 2017

What is driving aluminium supply and demand?

Will the aluminium market balance?

Where are prices heading?

2

Structure of Presentation

Demand: What is expected to drive demand?

Supply: Will China implement environmental closures?

Market balance: Can demand catch supply in 2017?

Price forecast: Where are prices heading?

Conclusions

3

Global economy begins 2017 robustly

2,002,102,202,302,402,502,602,702,802,903,00

20

15Q

1

20

15Q

2

20

15Q

3

20

15Q

4

20

16Q

1

20

16Q

2

20

16Q

3

20

16Q

4

20

17Q

1

20

17Q

2

20

17Q

3

20

17Q

4

20

18Q

1

20

18Q

2

20

18Q

3

20

18Q

4

Data: OE, CRU

Global Industrial Production (IP) IndexQuarterly global IP, % y-o-y change

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

20

15Q

1

20

15Q

2

20

15Q

3

20

15Q

4

20

16Q

1

20

16Q

2

20

16Q

3

20

16Q

4

20

17Q

1

20

17Q

2

20

17Q

3

20

17Q

4

20

18Q

1

20

18Q

2

20

18Q

3

20

18Q

4

Data: OE, CRU

Global GDPQuarterly global GDP, % y-o-y change

47

48

49

50

51

52

53

54

55

56

ma

rs-1

5

juin

-15

sept-

15

dé

c-1

5

ma

rs-1

6

juin

-16

sept-

16

dé

c-1

6

ma

rs-1

7

US Europe Asia

Aluminium Order Book Index

Data: CRU, Markit

47

48

49

50

51

52

53

54

55

56

ma

rs-1

5

juin

-15

sept-

15

dé

c-1

5

ma

rs-1

6

juin

-16

sept-

16

dé

c-1

6

ma

rs-1

7

US Europe Asia

Expected Purchasing Index

Data: CRU, Markit

4

4

China : Supporting growth and containing risks are the

goals ahead of this autumn’s Party Congress

Selected government targets for 2017

2016

target

2016

outturn

2017

target

y/y % unless stated

GDP 6.5 - 7.0 6.7 ≈ 6.5*

Inflation (CPI) 3.0 2.0 3.0

Credit growth (TSF) - 12.8 12.0

Fiscal deficit (% of GDP) 3.0 3.8 3.0

Note: TSF = Total Social Finance. Fiscal deficit is a narrow measure that excludes

off-balance sheet items, notably local government financing vehicles; including these

raises 2016’s deficit to around 10%, according to IMF estimates.

Note: * Or higher, if possible

Source: Chinese government, CEIC, CRU

Monetary policy

• Officially: “Prudent and neutral”

• Reality: loose, some tightening now

Fiscal policy

• Officially: “Proactive”

• Reality: extremely loose

Housing policy

• “Houses for living in, not investment”

• Hot markets - tightening demand

restrictions, instructed more land

supply

• Over-supplied markets - instructed

less land supply

5

2017 Global primary demand once again spearheaded by ChinaShare of global primary aluminium consumption and 2017 y-o-y% growth

Data: CRU Source : CRU Aluminium Market Outlook

y-o-y growth%

Country/region share of global aluminium consumption, %

63Mt

India

China Central & Sth America

Russia

Rest of world

Middle East

AfricaRest of Asia

USA

Western Europe

-4

-2

0

2

4

6

8

0 10 20 30 40 50 60 70 80 90 100

C&S America

Japan

34Mt

Total world demand growth in 2017: 5.3%

6

Automotive sector to fuel global demand growthAluminium semi-finished product consumption by end-use sector 2016-2021, ‘000t

3.5% p.a.

CAGR 2016-2021

4.2% p.a.

2.9% p.a.

3.3% p.a.

2.1% p.a.

4.9% p.a.

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Transport Construction Packaging Foil stock

Electrical Consumer durables Machinery & Equipment Other

4.2% p.a.

2.5% p.a.

7

China: The world’s aluminium semis factory

2016 Semis Net

Exports (‘000t)

Categorised as: North America, Central & South America, Western Europe, Eastern Europe (w/Russia), Africa, Middle East, China, Japan, India, Rest of Asia, Australasia

>1000

500 – 999

100 – 499

0 – 99

-99 – 0

-499 – -100

-999 – -500

<-1000

-200kt

-365kt

66kt

21kt

13kt 2001kt

-47kt-499kt

92kt

-207kt

-972kt

8


Demand: What impact will greater global tariffs have?




Conclusions

9

The old world’s share of aluminium production is droppingPrimary aluminium production split by region

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015 2020

Russia, India & Middle East

Rest of world excluding China

Inner Mongolia

Shandong

Xinjiang

Rest of China

10

• China is set to put in its strongest year for production growth on record. CRU expects China

will increase production by 3.8Mt in 2017, surpassing the last record of 3.3Mt in 2010.

Record output this year is despite the inclusion of 975,000t of unallocated closures in our

base case for 2017. The closures include around 350,000- 500,000t of environmentally led

closures in November and December.

Production Trends: China supply growth in focus

24

26

28

30

32

34

36

avr-15 oct-15 avr-16 oct-16 avr-17

China production CRU annualised

Ex. China production CRU annualised

World monthly annualised aluminium production, million tonnes

-1,0

-0,8

-0,6

-0,4

-0,2

0,0

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

Henan Shanxi Shandong Hebei

Impact of proposed seasonal cuts on production, million tonnes

11

Chinese projects will add a cumulative 12.2Mt over next 5

years without supply reformAluminium production, million tonnes

- 500 1000 1500 2000 2500 3000 3500

Guangxi

Guizhou

I.Mongolia

Liaoning

Qinghai

Shanxi

Shaanxi

Shandong

Xinjiang

Yunnan

2017 2018 2019 2020 2021

Data:CRU

Source: CRU Aluminium Market Outlook

12






Conclusions

13

Global market will move into deficit in 2018…only if China

cuts supplyKey Assumptions

925,000t and 4.5Mt of Chinese closures needed in

2017 and 2018

Environmental closures should account for 455,000t

and 600,000t of the closures in 2017 and 2018

Impact of supply reform policy uncertain at this stage

but could be large

Chinese consumption growth to fall in 2018 to 4.5%

Chinese net primary exports to rise from 500,000t in

2017 to 800,000t in 2018

Risks

Supply policy response in China could sway prices

either way

Projects still being added- mainly by SOEs

Costs inflation from alumina, power and carbon

480

-913

344

-538

-1500

-1000

-500

0

500

1000

1500

2000

40

45

50

55

60

65

70

2015 2016 2017 2018

Production Consumption

Balance (right axis)


14

Stock levels declining rapidly outside China


84

7473

67

50

60

70

80

90

0

2

4

6

8

10

12

14

2015 2016 2017 2018

Ex. China China World days' inventories (right axis)Mtdays

15






Conclusions

16

LME 7 Signals: China supply-reform the dominant topicKey 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: To remain stable Neutral

The dollar will strengthen a tad against the Euro. Trump wants a

weaker dollar, but increases in US interest rates in 2017 will send

the currency higher. CRU anticipates a neutral impact on prices

over the next 12 months.

Energy prices: Oil prices to remain stable Neutral

CRU forecasts Brent will average $54/bbl in 2017. The price is

currently trading around $53/bbl. Unless the oil market moves into

deficit there is unlikely to be much of a move in oil prices this

year. We have a neutral impact on prices from changes to oil.

Chinese macroeconomic data: Remaining firm NeutralEconomic activity remains firm in 2017 with GDP and IP to rise

6.6% and 6.0% respectively. Chinese IP growth will ease from

6.3% to 5.7% y-o-y.

Chinese Export Arbitrage: Exports expected to rise Bearish

Fake semis exports in the form of CC coil for remelt are set to rise

in the next quarter due to a widening of the price arbitrage in the

last months. However, the recent surge in the SHFE price may

reduce export expectations into Q3 2017.

Investors: Looking for more stringent Chinese policy Bullish

Capital inflows flowed into aluminium in the last two months whilst

other metals saw outflows of money. Expectations of supply

reform in China keep investors on-board for now. But, if there is

no meaningful reform then expect a quick exit of money.

Visible stocks: China slower increase, LME record low Neutral

Chinese reported warehouse stocks rose to 1.2Mt in April.

Further inflows will temper some investor expectation in coming

months. LME stocks fell to a nine-year low providing a positive

boost to prices. Stocks will continue to fall as deficits widen.

Aluminium Market: Widened deficit outside China Bearish

China will remain in surplus this year unless there are rapid and

meaningful supply reforms. The deficit outside China will

increase. Disruptions to supply at Alba and Vedanta have widened

the market deficit.

17

0

50

100

150

200

250

300

350

400

450

janv-16 mai-16 sept-16 janv-17

Lead Nickel Zinc Copper Aluminium

Investors remain bullish LME metals

Money manager net long, '000 lots

0

50

100

150

200

250

300

janv-16 mai-16 sept-16 janv-17

Aluminium LME metals excluding Aluminium

Investors starting to favour aluminium

Money manager net long, '000 lots

Aluminium outperforms non-ferrous metals in Q1 2017


18

LME Price forecast: LME 3-month price upgraded to $1,885/t

$1,516

$1,632

$2,010$2,050 $2,050

$1,775$1,725

$1,700$1,582

$1,709$1,850

$1,930 $1,910

$1,850

1400

1500

1600

1700

1800

1900

2000

2100

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

High Case Forward curve, March 27, 2017 Low Case Base case

LME 3-month price forecast

$/t

Data: CRU, LME

High case, base case and low case LME 3-

month price forecasts, $/t


19


133

145150

156 158

74

95

128120

125

7,5

9,610,0 10,2

10,5

0

2

4

6

8

10

12

0

50

100

150

200

250

300

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

Rotterdam duty paid Japan 3-month CIF US Midwest

Regional ingot premiums hold firm(LHS) $/t, (RHS) ¢/lb

Data: CRU

20






Conclusions

21

Conclusion

Global demand is expected to be robust in 2017 with a strengthening global economy supporting increased uptake of aluminium.

Supply in 2017 is expected to be a story about China, even with expected environmental closures capacity growth will be significant.

The aluminium market will register a small surplus in 2017 with a large surplus in China and a deficit in the world ex-China.

We expect the LME price to fall back in Q3 and Q4 due to the surplus.

22

For more information

about CRU products and services…

Contact Sam Kiri

[email protected]

+1 416 995 8142

Or visit www.crugroup.com

mailto:[email protected]

the global aluminium market outlook - société de la … global aluminium market outlook anil...

Documents