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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