20140616-Metal_Prospects_Aluminium_Market_Outlook_–_Third_Quarter_2014_24页_927kb

Metal Prospects: Aluminium Market Outlook – Third Quarter 2014

Core Content

The document provides an outlook for the global aluminium market for the period from 2014 to 2018, highlighting key trends in demand, supply, market balance, price forecasts, and associated risks.

Main Views

• Demand Growth: Global aluminium demand showed strong growth, with a 7.2% increase in Q1/14. The annual consumption growth for 2014 is forecasted at 7.0%, with a gradual decline to 5.0% thereafter.
• Supply Growth: Production curtailments outside of China have reduced utilization rates, but combined with strong demand growth, the market is in rough balance. China is expected to remain self-sufficient, while other regions must absorb excess capacity.
• Market Balance and Inventories: The global market is balanced to slightly in surplus, with inventories at historically high levels. Total inventories are expected to remain above critical levels, limiting price increases.
• Price Forecasts: The LME price plus physical premium is expected to stay below the 90th percentile of the cash cost curve to prevent the market from moving back into surplus. The forecasted average prices are $0.81/lb in 2014, increasing to $1.15/lb in 2018, with a long-term forecast of $1.10/lb in 2014 USD.
• Risks to Forecast:
  • Economic growth is a key risk factor, as a 1% decrease in demand could reduce the growth rate and increase surplus.
  • Investment demand can cause price volatility.
  • Supply changes, such as production curtailments or overgrowth, could impact market balance.
  • The Indonesian bauxite export ban could affect production and potentially increase prices if its impact is greater than anticipated.

Key Information

Demand

• Q1/14 global demand growth: 7.2%
• Annual consumption growth forecast for 2014: 7.0%
• Annual consumption growth forecast for 2015: 6.8%
• Annual consumption growth forecast for 2016: 6.6%
• Trend growth forecast for 2017 and 2018: ~5.0%

Supply

• Production growth forecast for 2014: 4.0%
• Production growth forecast for 2015: 6.8%
• Production growth forecast for 2016: 6.6%
• Production growth forecast for 2017: 5.1%
• Production growth forecast for 2018: 5.3%
• Net supply increase by 2018: 14.8 million tonnes
• Potential new supply from projects: 0.614 million tonnes by 2018
• Base case supply/demand: 25% of potential supply

Market Balance and Inventories

• Total reported inventories in Q1/14: increased by 233,000 tonnes
• Weeks of consumption (Western World): 16.9 weeks
• Critical inventory level: 9.5 weeks of consumption
• Total inventories remain above critical levels, limiting price increases

Price Forecasts

• LME price plus physical premium: expected to remain below 90th percentile of the cash cost curve
• Forecasted average prices:
  • 2014E: $0.81/lb
  • 2015E: $0.90/lb
  • 2016E: $1.00/lb
  • 2017E: $1.10/lb
  • 2018E: $1.15/lb
• Long-term forecast (2014 USD): $1.10/lb

Risks

• Economic Growth: Weak global economic indicators could lead to a surplus and lower demand and price forecasts.
• Investment Demand: May cause price volatility.
• Supply Changes: Further production cuts may support higher prices, while overgrowth could push the market back into surplus.
• Indonesian Bauxite Export Ban: Could increase alumina and aluminium prices if its impact is greater than expected.

Summary of Key Projections

Conclusion

The aluminium market is expected to experience continued strong demand and supply growth, with China playing a dominant role in production. Despite the high levels of global inventories, the market is anticipated to remain in a balanced state due to controlled price levels and capacity utilization. However, the forecast is sensitive to global economic conditions and potential supply disruptions.