I think Indoneasa's export restrictions on minerals is helping the price of Aluminum which is starting to move up. Here's comments from AA on their 2nd QTR conf call regarding aluminum and alumina.
When you add all the good things AA is doing in downstream markets (auto & aero) AA is a compelling turnaround story
mad2
Turning to the aluminum market, we've not changed our view that market fundamentals are positive and we're reaffirming our global aluminum growth projection of 7% this year. Supply and demand for both the alumina and aluminum markets are essentially balanced. However, both markets have tightened lately. In the case of metal, we're now projecting a 930,000 metric ton annual deficit, up from 730,000 metric tons, and for alumina the projected surplus has shrunk from 2.2 million metric tons to 800,000 metric tons.
The 2014 alumina surplus tightened since the first quarter by roughly 1.4 million metric tons driven by two factors. First, Indian production is not coming online as quickly as we expected, and secondly, China imports are increasing. The change in the aluminum projection is driven by a lower surplus in China reflecting curtailments that have been executed. In the rest of the world, most of the curtailments announced during the first half have been executed and therefore we are maintaining our view that the market is in a deficit of slightly over 1 million metric tons.
Total inventories at the end of the second quarter estimated to have fallen roughly 680,000 metric tons from 10.8 million metric tons ending the first quarter. This decline was broad-based with stock falling in China, the LME and off exchange. Producer held inventories remain near record lows of about eight days. Expressed in days of implied global consumption, inventories have fallen 5.1 days to 70.5 days compared to 76.6 days at the end of the first quarter.
Overall premiums have reached the historical high in the second quarter. At the end of the quarter, the U.S. Midwest now sits at $0.195 per pound with the other premiums also increasing during the quarter. Regional premiums continue to be driven by strong year on year growth in demand as I mentioned at the opening plus the impact of reduced production in some regions tightening the supply/demand balances.
Then from the Q&A
Andrew Lane - Morningstar
Okay great. And then to change gears quickly, I wanted to ask about the impact of the Indonesian export ban on bauxite. Because of the ban, Chinese bauxite imports have decreased pretty significantly and although they had a pretty sizable inventory before the ban took hold, we've seen some refining and smelting closures within the country. So in your view, will China be able to replace its lost imports from Indonesia with supply from other countries or do you think the ban will really have a longer-term impact on the global supply and demand dynamics for bauxite?
Klaus Kleinfeld - Chairman and Chief Executive Officer
On a long term it's always hard to tell with Indonesia and the election day is today if I recall that correct.
William F. Oplinger - Executive Vice President and Chief Financial Officer
Tomorrow. It might be today…
Klaus Kleinfeld - Chairman and Chief Executive Officer
But everybody says that even the person who is most likely to get elected also has made comments already on whether he's going to withdraw or loosen the ban, and he said, no, he's not going to do that, he thinks that that's the right thing to do. So at least for the time being, I am positively surprised about how strict Indonesia is and this is changing the supply dynamics in China and I mean we are seeing that the Chinese are looking for other opportunities. You have seen that at this point in time you are right, they still have a pretty substantial supply for alumina and also the demand there has gone down a little bit with the smelter closures that we saw in China and what Bill showed in his last slide there is there is still a little bit of an overhang in the Chinese alumina market but it's shrinking. So we'll see where that goes but you're spot on with that idiom.
Very good, Andrew. I think this leaves me with thanking you all to having listened in, I mean as you hopefully come to the same conclusion, the transformation of Alcoa truly is in high gear and the results show this. Our strategy is working, the downstream business has reached new profitability highs and the midstream business is capturing demand from many areas including the auto light-weighting that is accelerating. On the upstream side we see, we are relentless in improving our performance and becoming very highly competitive commodities business. So with that, I would say excellent progress and let's stay tuned. Thank you very much. |
