Post on 20-Mar-2018
transcript
The Global Aluminium Market Outlook
Anil Patel, CRU Aluminium
Aluminium Valley In Business Trade Show 2017
Québec, May 2017
What is driving aluminium supply and demand?
Will the aluminium market balance?
Where are prices heading?
2
Structure of Presentation
Demand: What is expected to drive demand?
Supply: Will China implement environmental closures?
Market balance: Can demand catch supply in 2017?
Price forecast: Where are prices heading?
Conclusions
3
Global economy begins 2017 robustly
2,002,102,202,302,402,502,602,702,802,903,00
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Data: OE, CRU
Global Industrial Production (IP) IndexQuarterly global IP, % y-o-y change
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Data: OE, CRU
Global GDPQuarterly global GDP, % y-o-y change
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US Europe Asia
Aluminium Order Book Index
Data: CRU, Markit
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US Europe Asia
Expected Purchasing Index
Data: CRU, Markit
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China : Supporting growth and containing risks are the
goals ahead of this autumn’s Party Congress
Selected government targets for 2017
2016
target
2016
outturn
2017
target
y/y % unless stated
GDP 6.5 - 7.0 6.7 ≈ 6.5*
Inflation (CPI) 3.0 2.0 3.0
Credit growth (TSF) - 12.8 12.0
Fiscal deficit (% of GDP) 3.0 3.8 3.0
Note: TSF = Total Social Finance. Fiscal deficit is a narrow measure that excludes
off-balance sheet items, notably local government financing vehicles; including these
raises 2016’s deficit to around 10%, according to IMF estimates.
Note: * Or higher, if possible
Source: Chinese government, CEIC, CRU
Monetary policy
• Officially: “Prudent and neutral”
• Reality: loose, some tightening now
Fiscal policy
• Officially: “Proactive”
• Reality: extremely loose
Housing policy
• “Houses for living in, not investment”
• Hot markets - tightening demand
restrictions, instructed more land
supply
• Over-supplied markets - instructed
less land supply
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2017 Global primary demand once again spearheaded by ChinaShare of global primary aluminium consumption and 2017 y-o-y% growth
Data: CRU Source : CRU Aluminium Market Outlook
y-o-y growth%
Country/region share of global aluminium consumption, %
63Mt
India
China Central & Sth America
Russia
Rest of world
Middle East
AfricaRest of Asia
USA
Western Europe
-4
-2
0
2
4
6
8
0 10 20 30 40 50 60 70 80 90 100
C&S America
Japan
34Mt
Total world demand growth in 2017: 5.3%
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Automotive sector to fuel global demand growthAluminium semi-finished product consumption by end-use sector 2016-2021, ‘000t
3.5% p.a.
CAGR 2016-2021
4.2% p.a.
2.9% p.a.
3.3% p.a.
2.1% p.a.
4.9% p.a.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Transport Construction Packaging Foil stock
Electrical Consumer durables Machinery & Equipment Other
4.2% p.a.
2.5% p.a.
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China: The world’s aluminium semis factory
2016 Semis Net
Exports (‘000t)
Categorised as: North America, Central & South America, Western Europe, Eastern Europe (w/Russia), Africa, Middle East, China, Japan, India, Rest of Asia, Australasia
>1000
500 – 999
100 – 499
0 – 99
-99 – 0
-499 – -100
-999 – -500
<-1000
-200kt
-365kt
66kt
21kt
13kt 2001kt
-47kt-499kt
92kt
-207kt
-972kt
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Structure of Presentation
Demand: What impact will greater global tariffs have?
Supply: Will China implement environmental closures?
Market balance: Can demand catch supply in 2017?
Price forecast: Where are prices heading?
Conclusions
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The old world’s share of aluminium production is droppingPrimary aluminium production split by region
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10%
20%
30%
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60%
70%
80%
90%
100%
2000 2005 2010 2015 2020
Russia, India & Middle East
Rest of world excluding China
Inner Mongolia
Shandong
Xinjiang
Rest of China
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• China is set to put in its strongest year for production growth on record. CRU expects China
will increase production by 3.8Mt in 2017, surpassing the last record of 3.3Mt in 2010.
Record output this year is despite the inclusion of 975,000t of unallocated closures in our
base case for 2017. The closures include around 350,000- 500,000t of environmentally led
closures in November and December.
Production Trends: China supply growth in focus
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avr-15 oct-15 avr-16 oct-16 avr-17
China production CRU annualised
Ex. China production CRU annualised
World monthly annualised aluminium production, million tonnes
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-0,8
-0,6
-0,4
-0,2
0,0
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
Henan Shanxi Shandong Hebei
Impact of proposed seasonal cuts on production, million tonnes
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Chinese projects will add a cumulative 12.2Mt over next 5
years without supply reformAluminium production, million tonnes
- 500 1000 1500 2000 2500 3000 3500
Guangxi
Guizhou
I.Mongolia
Liaoning
Qinghai
Shanxi
Shaanxi
Shandong
Xinjiang
Yunnan
2017 2018 2019 2020 2021
Data:CRU
Source: CRU Aluminium Market Outlook
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Structure of Presentation
Demand: What impact will greater global tariffs have?
Supply: Will China implement environmental closures?
Market balance: Can demand catch supply in 2017?
Price forecast: Where are prices heading?
Conclusions
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Global market will move into deficit in 2018…only if China
cuts supplyKey Assumptions
925,000t and 4.5Mt of Chinese closures needed in
2017 and 2018
Environmental closures should account for 455,000t
and 600,000t of the closures in 2017 and 2018
Impact of supply reform policy uncertain at this stage
but could be large
Chinese consumption growth to fall in 2018 to 4.5%
Chinese net primary exports to rise from 500,000t in
2017 to 800,000t in 2018
Risks
Supply policy response in China could sway prices
either way
Projects still being added- mainly by SOEs
Costs inflation from alumina, power and carbon
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-913
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-538
-1500
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2015 2016 2017 2018
Production Consumption
Balance (right axis)
Source: CRU Aluminium Market Outlook
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Stock levels declining rapidly outside China
Source: CRU Aluminium Market Outlook
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Ex. China China World days' inventories (right axis)Mtdays
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Structure of Presentation
Demand: What impact will greater global tariffs have?
Supply: Will China implement environmental closures?
Market balance: Can demand catch supply in 2017?
Price forecast: Where are prices heading?
Conclusions
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LME 7 Signals: China supply-reform the dominant topicKey LME drivers – bullish, neutral or bearish
CRU's Seven Price Signals (forecast)
Bull/Bear
/Neutral
1 month
ahead
Next 6
months Short Term View
US Dollar: To remain stable Neutral
The dollar will strengthen a tad against the Euro. Trump wants a
weaker dollar, but increases in US interest rates in 2017 will send
the currency higher. CRU anticipates a neutral impact on prices
over the next 12 months.
Energy prices: Oil prices to remain stable Neutral
CRU forecasts Brent will average $54/bbl in 2017. The price is
currently trading around $53/bbl. Unless the oil market moves into
deficit there is unlikely to be much of a move in oil prices this
year. We have a neutral impact on prices from changes to oil.
Chinese macroeconomic data: Remaining firm NeutralEconomic activity remains firm in 2017 with GDP and IP to rise
6.6% and 6.0% respectively. Chinese IP growth will ease from
6.3% to 5.7% y-o-y.
Chinese Export Arbitrage: Exports expected to rise Bearish
Fake semis exports in the form of CC coil for remelt are set to rise
in the next quarter due to a widening of the price arbitrage in the
last months. However, the recent surge in the SHFE price may
reduce export expectations into Q3 2017.
Investors: Looking for more stringent Chinese policy Bullish
Capital inflows flowed into aluminium in the last two months whilst
other metals saw outflows of money. Expectations of supply
reform in China keep investors on-board for now. But, if there is
no meaningful reform then expect a quick exit of money.
Visible stocks: China slower increase, LME record low Neutral
Chinese reported warehouse stocks rose to 1.2Mt in April.
Further inflows will temper some investor expectation in coming
months. LME stocks fell to a nine-year low providing a positive
boost to prices. Stocks will continue to fall as deficits widen.
Aluminium Market: Widened deficit outside China Bearish
China will remain in surplus this year unless there are rapid and
meaningful supply reforms. The deficit outside China will
increase. Disruptions to supply at Alba and Vedanta have widened
the market deficit.
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0
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janv-16 mai-16 sept-16 janv-17
Lead Nickel Zinc Copper Aluminium
Investors remain bullish LME metals
Money manager net long, '000 lots
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100
150
200
250
300
janv-16 mai-16 sept-16 janv-17
Aluminium LME metals excluding Aluminium
Investors starting to favour aluminium
Money manager net long, '000 lots
Aluminium outperforms non-ferrous metals in Q1 2017
Source: CRU Aluminium Market Outlook
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LME Price forecast: LME 3-month price upgraded to $1,885/t
$1,516
$1,632
$2,010$2,050 $2,050
$1,775$1,725
$1,700$1,582
$1,709$1,850
$1,930 $1,910
$1,850
1400
1500
1600
1700
1800
1900
2000
2100
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
High Case Forward curve, March 27, 2017 Low Case Base case
LME 3-month price forecast
$/t
Data: CRU, LME
High case, base case and low case LME 3-
month price forecasts, $/t
Source: CRU Aluminium Market Outlook
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Source: CRU Aluminium Market Outlook
133
145150
156 158
74
95
128120
125
7,5
9,610,0 10,2
10,5
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10
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0
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Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Rotterdam duty paid Japan 3-month CIF US Midwest
Regional ingot premiums hold firm(LHS) $/t, (RHS) ¢/lb
Data: CRU
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Structure of Presentation
Demand: What impact will greater global tariffs have?
Supply: Will China implement environmental closures?
Market balance: Can demand catch supply in 2017?
Price forecast: Where are prices heading?
Conclusions
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Conclusion
Global demand is expected to be robust in 2017 with a strengthening global economy supporting increased uptake of aluminium.
Supply in 2017 is expected to be a story about China, even with expected environmental closures capacity growth will be significant.
The aluminium market will register a small surplus in 2017 with a large surplus in China and a deficit in the world ex-China.
We expect the LME price to fall back in Q3 and Q4 due to the surplus.
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