| NEW YORK, July 12
NEW YORK, July 12 Citing improved end-market
demand, Alcoa Inc (AA.N) increased its outlook for 2010 global
aluminum consumption on Monday, with China, not surprisingly,
expected to grab the lion's share of global supply.
"China is obviously an important market, but also an
important market for Alcoa. We have sales of around $1 billion
in China. If you look at the last five years, we've had average
growth rates of around 29 percent in that market," Chairman and
Chief Executive Officer Klaus Kleinfeld said on Monday.
Speaking to analysts on a conference call after posting a
second quarter profit, the executive said he thought China had
been managing its supply/demand balance effectively by moving
swiftly to take production offline when necessary.
"We expect that very soon, most likely in the third
quarter, we will see 1 million to 1.5 million tonnes coming
He added that Alcoa had received notice that about 700,000
tonnes have probably already come offline or were about to come
offline in the Chinese provinces.
In its outlook for 2010 primary aluminum, Alcoa reduced
China's surplus from 400,000 tonnes in the prior quarter to
200,000 tonnes, and projected a 1.0 million-tonne surplus for
the Western World supply/demand balance.
At 16.5 million tonnes of primary aluminum demand, China
will consume the largest chunk of the 39.2 million total tonnes
forecast for 2010 global consumption.
"We continue to see that China is very, very good at
managing the supply/demand balance," Kleinfeld said, noting
that last year, when the Shanghai aluminum price fell, China
quickly cut output as much as 27 percent to stay in balance.
"At today's Shanghai metal price, we believe roughly 6
million tonnes of aluminum capacity in China is below the water
line," the CEO said.
At the same time, he said, China needs to make sure it has
sufficient aluminum to meet consumer demand for things like
refrigerators, washing machines and air conditioners.
Alcoa announced on Monday that it raised its 2010 global
demand outlook to 12 percent from 10 percent. Minus China, that
growth rate would drop to 6.5 percent.
"At the same time, we've seen additional production come
online. So, we continue to believe we're going to have a
(global) surplus this year of roughly 1.2 million tonnes."
Pittsburgh-based Alcoa cited stronger packaging, commercial
transportation, and building and construction segments for its
improved demand outlook. It posted a second-quarter profit that
beat Wall Street estimates. [ID:nN12206110]
Assessing 2010 growth rates for its end markets, Alcoa said
it looks for automotive demand to grow by 10 to 15 percent in
China compared with 2009. It projects a similar growth rate for
China's heavy truck and trailer segments. Alcoa forecasts a 7
percent increase in China's beverage can and packaging market.
For commercial building and construction, Alcoa said it
expects China's sales growth to be up 10 to 15 percent in
"Sometimes people throw at me, 'Hey Klaus, in China there's
a big bubble developing in real estate.' But investment in real
estate rose 38 percent, property values rose 68 percent in main
cities. Some people are estimating there will be 6 million
units of low cost housing built this year alone."
For alumina, Alcoa expects the global market to be
relatively balanced, forecasting a 700,000-tonne surplus for
China in 2010 and a Western World deficit of 500,000 tonnes.
"Chinese smelters are coming offline. Therefore there's
less alumina demand. We expect to also see reduced refinery
capacity," he said, adding that Alcoa cut its forecast for
Chinese alumina imports from 5.4 million tonnes to 4 million.
Some new capacity could start up in China, Kleinfeld said,
but noted that China has continued to move towards higher,
value-added industries, while reducing energy intensive ones.
"I get confronted with people asking, 'Aren't you concerned
China will flood the market with metal?' My answer always is
'No.' Aluminum requires energy intensity and energy is a scarce
commodity in China. They need it much more for other things."
(Additional reporting by Steve James; Editing by Bernard Orr)