Commodity Analysis

Demand-supply metrics boost aluminium

Seetharaman R | Updated on January 20, 2018 Published on May 22, 2016



The transportation segment is expected to drive global demand in 2016

The price of aluminium has stabilised since the beginning of 2016. At $1,545 per tonne, the price now is around 3 per cent higher compared to end-December.

The increase in price can be attributed to a drop in global aluminium supply from 4.78 million tonnes (mt) towards the end of December 2015 to 4.19 mt in end-February 2016. Nearly 78 per cent of this drop came on the back of reduced supply from China, from 2.53 mt at the end of December 2015 to 2.07 mt at the end of February 2016.

According to China’s non-ferrous metals industry association, since December 2015, close to 4.27 mt of smelting capacity has been closed.

Last year, global uncertainties and doubts over China’s investment-led growth saw aluminium prices tumble. Aluminium dropped more than 23 per cent, from $1,960 per tonne in May 2015 to $1,500 per tonne in December 2015. Producing aluminium at $1,700 per tonne is unviable. China, however, maintained its output through 2015 even as the rest of the world cut production by a million tonnes. According to Rusal, a Russian aluminium major, more than 35 per cent of China’s production is operationally loss-making.

Global supply

According to the World Bureau of Metal Statistics, the total global production (110.6 mt) surpassed consumption (110.4 mt) marginally (0.18 per cent) for 2014 and 2015. A significant inventory generation occurred between 2009 and 2013. From 2009 and 2013, the total global production (218.3 mt) was higher than total global consumption (210.5 mt) by 3.7 per cent.

For year ending March 2016, China produced nearly 31 mt (53 per cent) of the total global production of 57.7 mt, 5.2 per cent higher than the 54.8 mt for the same period a year earlier.

Demand and supply of aluminium in India is almost evenly balanced. India’s total aluminium consumption was 1.6 mt per annum towards the end of 2014-15 while the estimated production for the same period was 1.5 mt.

Demand dynamics in India

A recent report released by NITI Aayog ‘Metals in the world economy – Case of Aluminium Industry in India’ indicates that major players such as National Aluminium Company, Hindalco and Vedanta are pursuing brownfield and greenfield projects to more than double the domestic production in the next few years.

Demand is expected to grow at an annualised rate of 5.5 per cent per annum.

The per capita consumption of aluminium in India is, however, quite low at 1.4 kg compared to the world average of 8 kg, thus providing room for improvement in demand in the coming years. Prices of Indian aluminium are, however, closely linked to global prices and hence influenced by the demand-supply dynamics in the overseas market.

Aluminium prices are expected to go up in the next couple of months. The shutdown of a few high-cost plants and a gradual increase in global demand are an advantage.

Rusal expects global demand for aluminium to rise by 5.7 per cent for 2016.

The transportation segment is expected to account for 40 per cent of this demand, followed by construction, power and electrical sectors. The more stringent emission norms in the transportation sector — both in the US and in China — are expected to further increase the demand for aluminium.

Powering vehicles

An aluminium-intensive vehicle can reduce energy consumption by 20 per cent and carbon dioxide emissions by 17 per cent, according to Rusal.

The average aluminium content in a car is expected to increase to 250 kg from the current 150 kg, by 2025.

Besides, with China’s intent to maintain a growth rate of 6.5 per cent over the next five years, there is a positive outlook on prices for aluminium.

Published on May 22, 2016
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