KEY MESSAGES:
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World market is already in a surplus position. The US is suffering from ample spot availability and still near record-high off-warrant inventories despite fall in off-shore imports. Off-warrant inventories in Europe and LME Asia also experiencing buildups, while China experienced a 500k mton buildup in the first two months of the year.
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HARBOR expects a growing Western World primary aluminum surplus in the 2019-2020 period. Market will switch from last year’s deficit of 0.9 million mton to a 0.9 million mton surplus by 2020.
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World primary aluminum demand contracted in January at a 2.9% y/y clip. In North America, oversupply of scrap continues to cannibalize primary aluminum demand. US scrap abundance now spilling over to Europe and Asia.
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Leading indicators suggest that world demand will weaken further in the next few quarters.
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At the same time, world aluminum production is set to accelerate, with the Western World expected to experience the biggest two-year supply expansion in over three decades.
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Smelting costs have declined to the lowest in more than one and will likely fall further.
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LME prices have not bottomed-out yet. The door remains open for $1,770 per mton.