Alcoa Inc., which is spinning off aluminum assets later this year, sees something that much of the market doesn’t: an end to the prolonged surplus that left prices near a six-year low.
With about half the world’s aluminum plants losing money, the U.S. company that invented the domestic industry more than a century ago says global demand will exceed production this year by a record 1.2 million metric tons, forcing car and appliance makers to draw down inventories. While others predict smaller deficits, many banks including Goldman Sachs Group Inc. and producers like Norsk Hydro ASA say the glut will only get bigger.
Prices tumbled 19 percent last year, the most since 2008, and reduced output has been indicated in China, home to about half the world’s smelting capacity. But energy prices have kept plunging and the yuan is weakening.
That’s reducing costs for some producers, which means unprofitable plants may be able to hold on longer, Morgan Stanley said in a report last month. Any curtailments are unlikely to last because the Chinese government is offering support for industrial companies and has been reluctant to cut jobs as the economy slows, industry researcher Harbor Intelligence said.
“I just don’t know anybody that believes that there’s even a deficit, much less one of that magnitude,” Kevin Moore, the president of All Raw Materials Consulting in Clarkston, Michigan, said of Alcoa’s forecast.
“I see no numbers beside what Alcoa showed that would support that case, and I see a lot of different analyses by different people. So I have a difficult time understanding how theirs could be correct and some of the others would be so off base.”
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