Along with its 3Q19 financial results, Russia’s aluminium producer Rusal has given a market overview. The key points below.
The global manufacturing PMI rose slightly to 49.7 in September, two consecutive months of growth for the first time since 2017. This was mostly due to the jump in China’s PMI index. However, global manufacturing remains in contraction (since PMI is below 50 points). Growth also looks to have accelerated in the emerging economies, mainly due to a policy-driven rebound in India. Despite this, there appears to have been a slowdown in the developed world as a whole, with the US and the Euro zone both posting slightly slower rates than in 2Q19. There are some signs that industrial production and exports, which have been the weakest parts of the global economy in recent months, may be bottoming out. But the trade tension between China and the US is still unsolved and continues to cause uncertainty in the market.
As a result, 3Q19 was disappointing and led to further deterioration in aluminium demand compared to the previous quarter. Global primary aluminium demand decreased to almost zero growth in 9M19 YoY, and was at 49.5 million tonnes (ex-China it was down 1.5% YoY at 21.9m tonnes and in China it was up by 1.4% YoY, to 27.6m tonnes).
At the same time rest of the world (RoW) aluminium production grew during 9M19 by 1.3% to 20.9 million tonnes and this negatively impacted premiums, the LME price and inventory build-up.
Overall, RoW aluminium market was in a deficit of around 1 million tonnes during 9M19.
Looking at the cash cost curve, in the RoW today, around 18% of smelters with capacity of about 5 million tonnes operate at a loss despite the decline in cost of raw materials. Unless this leads to production cuts, it is expected that the LME price will stay depressed in 4Q19.
Chinese supply both for domestic production and exports was significantly reduced in 3Q19 compared to the previous quarter and is likely to impact the supply into the RoW and thus provide some support to the LME price going forward.
Operating capacity in China during 9M19 has decreased due to series of disruptions in the Shandong province and now stands at 35.7 million tonnes at the end of 3Q19 compared to 36.6 million tonnes at the end of 2Q19. Overall production in China during 9M19 was 26.7 million tonnes, down 1.7% compared to the same period of 2018. Chinese regional stocks continued their strong decline in 3Q19 and are now below 945 thousand tonnes vs 1.05 million tonnes at the end 2Q19.
During 9M19, China’s exports of unwrought aluminium and aluminium rose 2.9% YoY to 4.4 million tonnes, although this was more a result of a first 5M19 growth, with the gains being gradually eroded since June. Exports growth slowed to 2.4% in 9M19 YoY versus a 5.3% rise observed in 8M19 YoY.