Aluminium market update

Since November, aluminium has been trapped in a very tight $75 range between $1907.5/t and $1972.5. Alumina prices have fallen from a high of ~$600/t in October to ~$400/t at the beginning of December. This is despite production at the world’s largest alumina refinery, Alunorte , remaining at half capacity In place of Alunorte , China has become a maj or exporter of the raw material. Historically a net importer, China’s exports surged to 460 kt in October and total 760 kt since July. W hile Aluno rte remains offline, China can remain a net exporter, but volumes of ~100-200 kt /month are far more sustainable . E ven if Alunorte was at 50% production throughout 2019, we estimate that the world-ex China alumina market would only be in a small deficit, <500 kt , due to supply additions . However, potential tightness to remain in the alumina market until H2. At current alumina and aluminium prices, 27% of smelters unprofitable. A ny further disruption to alumina would be significant if it caused a rise in the spot price of the raw material without a corresponding rise in aluminium price . The U.S. treasury announced in early December that for the fifth time it was extending the deadline for winding up contracts with Rusal , this time until January 21st from a previous deadline of January 7th. The constant extensions of this deadline suggest the U.S. government is looking to avoid full implementation of the sanctions . However, the threat of sanctions will only be removed if Deripaska gives up control of Rusal . The ongoing trade war between the U.S. and China has led to an accelerated slowdown in the growth of the Chinese economy and alongside the emergence of China as a major exporter of alumina dragged down prices . While we remain bullish on aluminium for H1 2019 due to elevated alumina prices and increased demand on the back of Chinese stimulus, we are lowering our Q1 2019 forecasts to $1975/t and $2100/t. This decreases our fore cast for next year to $2175/t. However, there does remain a s ignificant risk to the downside if there is a n escalation in tensions between the U.S. and China .