Daily aluminium production dropped back a bit in March. But with prices currently at multi-year highs, and only very piecemeal restrictions on output in China, economists at Capital Economics doubt it will be long before daily aluminium production starts to creep higher again.
Outside of China, the decline in daily production is a departure from the trend increase since the middle of last year
“According to the International Aluminium Institute (IAI), global aluminium production grew by 5.0% YoY in March. However, given the virus-related disruption to output last year, we think the monthly change in daily production offers a better steer on the underlying trend. Here, we find that daily production in March both in and outside of China was a little lower than in February.”
“The small MoM fall in daily aluminium production in China probably reflects the suspensions of capacity in Inner Mongolia. However, other major aluminium-producing provinces have not imposed similar restrictions on output, and the big picture remains that profit margins at aluminium smelters in China are very high, which should incentivise additional production in the months ahead.”
“Given the huge premiums currently being paid for aluminium in the US, Europe, and Japan, we doubt last month’s decline is a sign of things to come. Instead, we think that aluminium production both in and outside of China will push higher over the course of this year, which should cause the price of aluminium to underperform that of other base metals.”