According to Goldman, more than 4% of global aluminum capacity is likely to be lost due to the combination of low prices, along with non-market factors such as disruptions in power supplies, over the last three to four months.
Further, there is scope for further supply cuts, with some Chinese output losing money and costs expected to keep rising. But while supply cuts are important, Goldman said its mildly bullish first-half view on aluminum is predicated primarily on rising global demand.
“We assume an end to de-stocking in Europe, a re-acceleration of Chinese aluminum end-use growth, and moderately higher U.S. demand, which has been reinforced by recent good macro data as well as more evidence of an increasingly looser policy stance in China,” Goldman added.
“This improving demand is set to ensure that a large portion of the high-cost Chinese supply will be required to operate at least at breakeven, which in turn will require higher prices than are prevalent today. Still, the near-term upside is “likely to be tempered by fears over European demand and aluminum financing deals,” Goldman concluded.
