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NEW YORK, July 13 -- Citing improved end-market demand, Alcoa Inc (AA.N: Quote) increased its outlook for 2010 global aluminum consumption on Monday, with China, not surprisingly, expected to grab the lion's share of global supply.
&quot;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,&quot; 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.
&quot;We expect that very soon, most likely in the third quarter, we will see 1 million to 1.5 million tonnes coming offline.&quot;
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.
&quot;We continue to see that China is very, very good at managing the supply/demand balance,&quot; 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.
&quot;At today's Shanghai metal price, we believe roughly 6 million tonnes of aluminum capacity in China is below the water line,&quot; 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.
&quot;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.&quot;
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.
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 2010.
&quot;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.&quot;
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.
&quot;Chinese smelters are coming offline. Therefore there's less alumina demand. We expect to also see reduced refinery capacity,&quot; 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.
&quot;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.&quot;
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Alcoa Raises Demand Outlook; China to Be Major Consumer | Shanghai Non ferrous Metals

Alcoa Raises Demand Outlook; China to Be Major Consumer

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