Oct 27 (Reuters) – Is the world aluminium market in a supply-demand deficit or surplus? It’s a simple enough question but an extraordinarily difficult one to answer.
That much was clear at last week’s LME Seminar. Two respected bank analysts, Citi’s David Wilson and Natixis’ Nic Brown, offered diametrically different views.
Deficit, according to Brown, and one that will steadily increase over the next two years. Surplus, according to Wilson, with no sign of deficit until 2017 at the earliest.
Calculating supply-demand balances in any industrial metal is a tricky business, but the problems are compounded in aluminium.
There is, for example, no aluminium equivalent to the International Study Groups that do so much of the statistical leg-work in the copper, zinc, lead and nickel markets. The International Aluminium Institute (IAI) releases monthly production figures but only for primary metal, leaving the secondary scrap component of the supply chain shrouded in statistical darkness.
The thorniest problem of all, however, is assessing what is going on in China. It’s a problem that is not unique to aluminium, but it has acute resonance in this particular market, given that China is both the world’s largest producer and consumer of aluminium.
And it is China that lies at the heart of the difference in analysts’ opinions on the market balance.
WESTERN DEFICIT, CHINESE SURPLUS
Analysts would probably all agree on one thing. China itself is currently in supply-demand surplus, while the rest of the world is in deficit.
That inference can be drawn from those monthly IAI production figures.
Production outside of China has been trending lower since 2012, when producers first started curtailing and closing capacity in response to low prices.
Average daily production outside of China has fallen from 70,000 tonnes in December 2011 to 66,500 tonnes in September 2014 as the ramp-up of new smelter capacity in the Gulf region has been more than offset by closures elsewhere.
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