Even though the aluminum marketplace in China is unhealthy, with high production costs, curtailments in 2013 are expected to be "more subdued" than in 2012, according to Timothy Reyes, president of Alcoa Materials Management.
Speaking at the Platts Aluminum Symposium on January 21, Reyes said 30% of China's smelters were operating at a loss. But, outside of China, production is growing, particularly in the Middle East, with growth from EMAL and Alcoa's Ma'aden aluminum smelter. Overall in 2013, Alcoa expects a global surplus of 535,000 mt — or a relatively balanced market.
Reyes said China "leads the pack as a key demand center." China is expected to see growth of 7-10% in the automotive sector, 12-19% in heavy truck and trailer demand, 8-12% in beverage can packaging and 8-10% in commercial building and construction, he added.
Alcoa expects global growth in all of its end markets in 2013, with the North American commercial building and construction market set to show a slight gain for the first time in four years. Alcoa continues to project overall global demand growth of 7% for 2013.
Another bright light for aluminum, Reyes added, is that it has been taking share away from other metals because of its light weight, specifically in the automotive, building and construction sectors. "We see strong demand," he said. "We see the outlook for the financing structure intact and premiums strong in 2013." Nevertheless, there were "still uncertainties in the marketplace. It is still scary out there on [the] horizon and this spans the globe," he added.
Reyes said the level of "canceled warrants are indicative of the overall financing structure that exists today" and the attractiveness of aluminum as an asset class. He said that, with the combination of available capital at low costs and full contango on the London Metal Exchange, there was going to be demand from financiers.
He said while many in the market were pointing the finger at the LME for causing near record aluminum premiums with more than 5 million mt being stored in LME warehouses, the atmosphere was ripe for institutions other than consumers to hold metal. "If you single out the LME, you are not necessarily looking at the whole picture," Reyes said.