6 Feb

Is the Macro Environment Supportive for Aluminum Producers?

WRITTEN BY Mark O'Hara FEATURED IN Company News, Insights, & Analysis

Macro environment

For commodity producers like Alumina Limited (AWC) and South32 (S32), the macro outlook is equally if not more important than the company’s relative position in the industry.

Is the Macro Environment Supportive for Aluminum Producers?

Aluminum markets

While aluminum’s (XME) upside could be limited this year after two years of strong gains, there is no reason to expect a sharp fall in prices. Although China’s aluminum demand growth rate could fall in 2018 as compared to its 2017 growth rate, it is expected to be somewhat offset by a higher growth in the rest of the world. However, the supply-side picture remains unclear. Last year, China’s aluminum exports rose 4.5% year-over-year despite the capacity cuts. The country’s aluminum inventory also rose to a record high. However, we did see a sharp decline in LME (London Metals Exchange) aluminum inventory in 2017.

President Trump’s policies

President Trump’s policies could also be favorable for Alcoa (AA) this year. Trump has received the Section 232 imports investigation findings and has to decide on a possible action by the middle of April. If we see action against aluminum imports, it could benefit US-based aluminum producers. Century Aluminum (CENX) has been quite vocal against aluminum imports. Along with trade action, any actionable thrust on infrastructure investments could boost US aluminum demand and potentially benefit US aluminum producers.

To sum up, despite some legacy issues and the looming threat of higher Chinese aluminum exports, Alcoa’s risk-reward ratio might become favorable at current prices.

You can visit our Metals and Mining page for ongoing updates on this industry.

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