NEW YORK – Alcoa Corp sees Chinese cuts in aluminum production returning the global market to “relative balance” as the Asian nation’s supply-side reforms begin to bite.
The largest US aluminum producer reduced its global surplus forecast for the lightweight metal this year as China appears to be holding to its promise to curb capacity to meet pollution-control targets.
“The improvement is mostly due to planned and actual curtailments in Chinese smelting capacity as well as increased Chinese demand,” Alcoa said Wednesday in its third-quarter earnings statement.
China will have a surplus of 1.8-million to 2-million metric tons of aluminum this year, Alcoa said in a presentation accompanying the earnings report. That compares with a July projection for a surplus of 2.2-million to 2.4-million. As a result, the company projects the global aluminum market is heading to relative balance in a range of a 300 000 t deficit to a 100 000 t surplus. In July, Alcoa forecast a 300 000 t to 700 000 t global surplus.
“China has been taking real concentrated efforts to get its environmental house in order,” Chief Executive Officer Roy Harvey said Wednesday in a telephone interview. “Making sure operations have permits to operate but also making sure their citizens can breathe. It’s been good news to the broader market that hasn’t believed that China could deliver.”
Figures from China on Thursday added weight to Harvey’s outlook. The country’s primary aluminum output shrank to 2.61-million tons in September, down both on-month and on-year, according to the statistics bureau.
The Pittsburgh-based company has surged 70% this year through Wednesday’s close in New York as the prospect of China shutting outdated, illegal and polluting plants helped boost aluminum prices. The metal is on pace for its best year since 2009 and leading all but copper among commodities tracked by the Bloomberg Commodity Index. China is the world’s biggest producer of the metal and has been a target of criticism for creating a glut of aluminum that previously was depressing global prices.
Alcoa raised its forecast for 2017 earnings before interest, taxes, depreciation and amortization. The company now sees full-year adjusted Ebitda of about $2.4-billion, up from a previous view of $2.1-billion to $2.2-billion.
The earnings statement was released after the close of regular trading on Wednesday in New York, where Alcoa fell 1.5% to $47.02 at 6:07 p.m.
Profit excluding one-time items was 72 cents a share, missing the 74-cent average of 11 analysts’ estimates compiled by Bloomberg. Sales climbed 27% to $2.96-billion, topping the $2.93-billion estimate.
Last month, Morgan Stanley raised its earlier aluminum price forecast for 2018 by 5%, saying the Chinese supply-reform policies are “unprecedented”, with plants closing in key hubs.
In April, the Trump administration launched a so-called Section 232 investigation to determine whether cheap aluminum imports were threatening US national security. While the probe was put on the back burner, the moves encouraged Alcoa in July to restart a portion of its Warrick operations in Indiana. In an announcement at the time, the company thanked President Donald Trump for actions to address challenges faced by the US industry, including Chinese overcapacity.