Aluminum Chaos May Just Be Beginning as Alcoa Lifts Forecasts

(Bloomberg) -- An unprecedented confluence of disruptions roiling the aluminum industry may mean a $1 billion windfall for the top U.S. producer.

With U.S. sanctions on United Co. Rusal fueling a record aluminum rally, Alcoa Corp. lifted its 2018 earnings forecast on Wednesday. It also projected a wider global deficit of the metal this year amid delays in Chinese plant expansions, and said the market for the main ingredient in aluminum is also set to swing into deficit as a giant plant in Brazil operates at a reduced rate.

The outlook for further tightness supports aluminum’s rally to near seven-year highs as supply from Moscow-based Rusal gets shunned in world markets.

“Considerable uncertainty remains in the global supply chain due to multiple trade actions, sanctions, and supply disruptions,” Alcoa said in a statement accompanying its quarterly earnings.

Alcoa shares were up 4.3 percent before the start of regular trading on Thursday. The shares had climbed 10 percent this year before Wednesday’s close. Century Aluminum Co., the only other major U.S. producer of the metal, also rose.

Due to delays in projects to expand smelters in China, Alcoa now sees aluminum demand topping production by as much as 1 million metric tons in 2018, compared with the company’s previous forecast for a shortfall of as much as 700,000 tons.

A partial shutdown at the world’s biggest alumina refinery, in Brazil, is generating further shock waves to the market for the main metal-making ingredient.

In alumina, Alcoa projects a global deficit of 300 thousand metric tons and 1.1 million tons for 2018, “primarily due to supply disruptions in the Atlantic region.” That projection -- which doesn’t include repercussions from the Rusal ban -- compares with last quarter’s expectations for a balanced market.

Pittsburgh-based Alcoa now sees full-year adjusted earnings before interest, taxes, depreciation and amortization of $3.5 billion to $3.7 billion, compared with a previous view of $2.6 billion to $2.8 billion.

©2018 Bloomberg L.P.

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