China’s economy revival to lead to global aluminium recovery in H2 2020, but oversupply issues to persist: Alcoa CFO

Aluminium demand is likely to rebound in the second half of 2020 as China’s economy has begun to revive leading to the global recovery from the COVID-19 pandemic. But the overcapacity may continue to pose challenges to the industry, pointed out Alcoa CFO William F. (Bill) Oplinger in early June.

Oplinger, while participating during a virtual presentation for the Deutsche Bank Global Industrials & Materials Summit, said: “China is leading the recovery, and we are seeing some sectors in China reporting growth higher than 2019 levels in areas like industrial production, vehicle production, commercial starts and food and drink sales.”

He added, “On top of that was the recently announced Chinese stimulus plan that makes provisions for investments in traditional and new infrastructure areas, so China is leading the way on a V-shaped recovery.”

According to Alcoa CFO, the aluminium industry’s recovery has been on a downtrend outside China so far this year, but now the orders for the second half of the year represent a positive sign for the near future.

“As we look around the rest of the world, the rest of the world has been a little bit slower to recover on the demand side, but we do believe there are potential green shoots out there,” Oplinger said.

But despite the growing demand in the coming months, what the aluminium industry needs to address now is the operational overcapacity and increasing global inventories in order to support a full recovery.

 Oplinger suggested, “To rectify that, it will be a combination of both higher demand and supply restrictions,”

He added, “We have seen a drawdown in Chinese inventories as the strength of the demand comes back, so that’s a positive, but offsetting that is the growth in inventories in the rest of world.”

Oplinger estimates that about one-third of the world’s aluminium smelting capacity would currently operate at a profit loss.