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An Alcoa sign is painted on the exterior of a storage vat in the industrial port area of Kwinana in Western Australia on Friday, August 04, 2017. Photographer: Carla Gottgens/Bloomberg *** Local Caption *** XXXXX

Alcoa’s bid to halt losses runs into world awash in aluminium

An Alcoa sign is painted on the exterior of a storage vat in the industrial port area of Kwinana in Western Australia on Friday, August 04, 2017. Photographer: Carla Gottgens/Bloomberg *** Local Caption *** XXXXX

Alcoa Corp.’s bid to stem a year-long profit slide isn’t getting much help from China.

An Alcoa sign is painted on the exterior of a storage vat in the industrial port area of Kwinana in Western Australia on Friday, August 04, 2017. (Photo: Carla Gottgens/Bloomberg )

The top US producer of aluminium sees global production of the metal outstripping demand this year, adding more gloom to a slumping commodity and giving more urgency to a cost-cutting drive after a fourth straight quarterly loss. The surplus will be fuelled by production in China, according to the company’s forecast.

The outlook comes as Alcoa takes steps to counter weak prices by shedding assets and getting leaner, saying in October it would sell non-core businesses to generate as much as US$1 billion in net proceeds. Aluminium prices have slipped amid trade tensions and a slowdown in manufacturing worldwide, and Alcoa’s forecast suggests further declines may be in store.

“In aluminium, Chinese overcapacity continues to challenge the global market…The excess supply of Chinese semis will be exported to the world.”

– Alcoa Chief Executive Officer, Roy Harvey

“China overcapacity remains a problem for the aluminium market with no change on the horizon,” Jefferies LLC analysts including Christopher LaFemina said in a note. “While Alcoa is taking actions to cut costs and drive productivity, weak aluminium market fundamentals and a lack of free cash flow are concerns.”

Alcoa on Wednesday projected global aluminium supply will exceed demand by as much as 1 million metric tons in 2020, fuelled by production in China. That compares with a deficit last year of 900,000 tonnes to 1.1 million tonnes. The manufacturer also reported a wider-than-expected adjusted loss for the fourth quarter.

Alcoa Chief Executive Officer Roy Harvey (Photo: moneyinc.com)

Worldwide demand growth will be in a range of 1.4 per cent to 2.4 per cent this year. The company’s final aluminium estimate for 2019 was a decline of 0.2 per cent to 0.4 per cent.

Still, the increase in demand won’t be enough to absorb excess supply.

“In aluminium, Chinese overcapacity continues to challenge the global market,” Alcoa Chief Executive Officer Roy Harvey said on the company’s earnings call with analysts Wednesday. “The excess supply of Chinese semis will be exported to the world,” effectively displacing primary aluminium in those markets, he said.

Chinese overcapacity of aluminium is a challenge to the global market, Harvey said.
(Photo: idiom.com)

The so-called phase one trade deal the US signed with China on Wednesday may be cause for optimism.

 “There are catalysts for positive change,” Harvey said, citing “recent developments that we’ve seen with China, and particularly if we start to advance toward a phase two part of the deal. I think that gives us the catalyst for improvements happening more quickly.”

Alcoa’s statement was released after the close of regular trading in New York on Wednesday. The company’s shares were down 2.4 per cent at 8:07AM in pre-market trading.