KEY MESSAGES:
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The Western World primary aluminum market is already in surplus, embarked on a shift towards the biggest market surplus in a decade.
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Booming production growth of primary aluminum is one of the drivers behind this shift, as we see production in the Western World expanding briskly in 2019-2020, by 5% per year (2.9 million mton).
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Conversely, primary demand keeps weakening and is set to remain subdued. Western World primary demand grew only 0.5% in 2018 and is projected to increase by only 1.6% in 2019.
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Primary consumption in the Western World is slowing down along with end-user demand as manufacturing activity is set to continue to weaken in the coming quarters, while also being cannibalized by record Chinese exports (up 21% in 2018), and abundance of scrap at deep discounts.
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The emergence of a surplus is being confirmed by rising LME inventories (up by the most in seven years in Q4 2018), buildups in unreported stocks (in Europe and the US), as well as plummeting LME prices (which reflect the market’s view of the future) and premiums (at two-year lows in Europe and Asia).
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The Western World will shift from a deficit of 0.9 million in 2018 to a surplus of 0.2 million mton in 2019 to 0.9 million mton in 2020.