The aluminium price is forecast to strengthen this year, as the demand outlook continues to improve and prices are kept elevated owing to the expectations of Chinese supply constraints, says Fitch Group-affiliated BMI Research.
The researcher has increased its 2018 price forecast from $2 000/t to $2 100/t.
BMI says Chinese authorities have targeted significant capacity cuts over November 2017 to March 2018, as part of efforts to improve air quality. “We see this development as largely priced into aluminium prices as of late January, and expect cuts to be offset by new capacity coming on line. We expect aluminium prices to trade between $2 000/t to $2 300/t over the coming months.”
Moreover, the firm notes that solid Chinese demand, driven by the infrastructure sector, as well as increasing demand from the global automotive sector, will underpin aluminium undersupply. Beyond 2018, BMI expects aluminium prices to increase steadily as the global deficit continues to widen.
Global aluminium production growth will decelerate – as outdated and higher-cost production is taken offline in key countries, including China. This trend will be driven by both producers’ efforts to improve balance sheets following years of financial downturn and increasingly stringent environmental regulations.
BMI is forecasting China’s aluminium output to edge higher, from 34.2-million tonnes in 2018 to 36.8-million tonnes by 2021, averaging 2.7% growth, compared to an average yearly rate of 10.8% growth over the previous five-year period.
Nonetheless, China will remain the driving force behind global aluminium production, accounting for about 58% of total output over the coming years.
Meanwhile, the global aluminium demand picture will improve, driven by steady consumption growth in Asia and the growing application of aluminium in industries such as automotive and aerospace.
BMI forecasts aluminium consumption in China to edge higher from 59.6-million tonnes in 2018, to 66-million tonnes by 2021, averaging 3.4% a year growth.
China’s aluminium consumption growth will see a slight slowdown over the coming years as the country gradually transitions away from the construction-centric model of economic growth that dominated the past two decades.
“While we forecast China’s aluminium demand growth to average lower over the coming years, at 3.9% compared to 8.5% over 2012 to 2016, this remains a solid growth rate for the country that accounts for nearly half of global aluminium consumption,” BMI reports.