Demand Cycle Nears Bottom, Recovery Expected to be Weak

KEY MESSAGES

• Our end-user demand leading indicators have been suggesting that the ongoing downturn in the world’s manufacturing cycle could begin to subside soon, even though activity could take a few more months to return to expansion territory.
   

• However, for now, world primary demand remains in contraction territory, and is expected to underperform again in 2020. During the first eight months of 2019, ROW demand fell by 2.6% y/y, as the contraction in demand has been broad-based across Europe, Japan, and North America.
   

• In the meantime, world primary production remains on track to accelerate toward the end of the year and in 2020, amid expected gains in Bahrain, Brazil, Canada, as well as in China.
   

• The global market continues to develop a growing surplus. For 2020, we continue to expect Western World’s market surplus to be the biggest in a decade, at 1.0 million mton in 2020.
   

• In fact, so far in 2019, oversupply conditions in the Western World have been already the most intense since at least 2015, according to HARBOR’s Availability Index readings over the last six months.
   

• Moreover, primary aluminum smelting cash costs are down to new two-year lows. However, average smelting cash profit margins reached a 22-month high in August, while ROW’s have been steady around year-to-date highs despite falling LME prices.