Rusal Sees 2017 Aluminum Deficit Exceeding 2 Million Tons

 

 

“We already see the aluminum market falling into deficit due to curtailments and strong consumption,” Deputy Chief Executive Officer Oleg Mukhamedshin said in an interview in Moscow. “Rising aluminum premiums are a good sign of this. We expect the market deficit, excluding China, will only grow until at least 2017 due to increasing demand and capacity cuts.”

 

 

Prices for aluminum, used in products from beverage cans to aircraft, have slumped 16 percent in 2013, heading for the second annual drop in three years. The metal is trading at the lowest level since 2009, with stockpiles of aluminum stored in warehouses tracked by the London Metal Exchange close to the record reached in July. The aluminum price declined 0.2 percent yesterday to $1,739 per ton.

 

 

Rusal has joined Alcoa Inc. (AA) and Rio Tinto Plc (RIO) in reducing production. The Russian company intends to cut 324,733 tons in 2013 compared with 2012 levels and 647,504 tons in 2014, it said in October. Demand is forecast to rise by 6 percent to 6.5 percent annually from 2013 through 2017, as the impact of any new plants is more than outweighed by increased consumption and shutdowns, Mukhamedshin said.

 

 

The result is a deficit, which Rusal already sees at 429,000 tons, outside China, according to a presentation to analysts handed to Bloomberg. The gap may be 1.3 million tons in 2014 and 2015, growing to 1.9 million tons in 2016 and 2.4 million tons the following year.

 

 

 

 

“We already see about 1.7 million tons of ex-China capacity being closed and we expect another 1 million tons to be idled or delayed next year,” Mukhamedshin said. That should “sooner or later” start affecting the price as global aluminum stockpiles shrink, he said.

 

 

Prices have bottomed out, according to Rusal. Taking only supply and demand factors into account, prices may be around $2,000 a ton next year, $2,250 in 2015 and $2,400 ton in 2016.

 

 

About 9 million tons of aluminum is in storage outside of China, Rusal estimates. That covers about 2.2 million tons at warehouses not tracked by the LME, and 6.7 million tons of reported stocks, including 5.3 million tons at the London bourse, according to Mukhamedshin.

 

 

The total may decline to 5 million tons to 6 million tons, excluding China, by 2016 because of a widening gap between production and demand, Mukhamedshin said.

 

 

“It is clear that China won’t export the primary metal,” he said. “As a result, any capacity imbalance in China only affects the Chinese physical market.”

 

 

 

 

Rusal hasn’t seen China increasing exports of semi-finished aluminum product, he said. “It remains at more or less the same level of the past several years,” Mukhamedshin said. Most Chinese aluminum-producing provinces planning new projects have decided not to proceed with them.

 

 

The LME’s decision to change its warehousing rules isn’t expected to have any impact on the market, according to Rusal. The LME altered the terms in November to speed up withdrawals from warehoused stockpiles. The amendments will affect depots where waiting times exceed 50 calendar days.

 

 

The premiums paid by clients on top of the LME price to get the metal delivered promptly have returned to their levels before the bourse announced the changes and continue to rise, Mukhamedshin said. While premiums may start to decline after April 1, that should be accompanied by an increase in LME prices, he said.

 

 

The LME’s steps, intended to speed up deliveries from warehouses, may have the undesired effect of making it harder to track global levels of aluminum in storage, Mukhamedshin said.

 

 

“The new rules will force the transfer of additional amounts of metal into non-regulated zones, which will reduce transparency in aluminum stocks,” he said.