Theme of the Day: Alcoa: Fundamentals, macro trends support aluminum prices

· Global alumina demand is expected to grow steadily on the next 10 years as well. On the back of the increase on primary aluminium production, even though the demand is going to grow globally, is not going to be evenly distributed, will happen mostly outside China, mostly in India and Indonesia. It is also in India and Indonesia that we'll see most of the new refineries being built. The new refineries in China will mostly be substituting the old and less competitive ones. So, we are not expecting China to become a major exporter of alumina. The Atlantic will remain in a structured deficit, just like we see in metal. Relying on supplies from the surplus of the Pacific and Australia will remain the world's largest alumina exporter. · Global aluminium demand for primary and secondary aluminium will grow steadily in the next decade. China will remain the largest consumer, but the demand for primary aluminium there will slow. The stronger growth will come from other regions that is expected to grow around 2% per year. For Alcoa, this is significant, because it means that the demand in North American and Europe will continue to grow adding to the existing deficit. And those are the regions where we have the strongest presence that we have the competitive advantage. · And it's coming from four key markets. In transportation, the shift to EV and light-weighting is the major factor. So, automakers are swapping steel for aluminium in a way to cut weight to improve fuel efficiency and extend EV range. On packaging, consumers are looking for more recyclable and more sustainable options. And this is great news for aluminium, especially for beverage cans and food packaging where aluminium is becoming the material of choice. In construction, urban growth and investment in infrastructure is accelerating the use of aluminium in buildings. Think about facades, windows, and structural components. Investments from governments, especially in Europe, is also a driver here. And finally, the construction of new data centres is something that is emerging as a demand for this segment. On electrical, as the power grid modernizes and the world shifts to more renewable, the aluminium is playing a larger role on power transmission, on solar panels and wind turbines. Analysts forecast that there will be a lot of demand coming to that segment on the back of the electrification and the decarbonization targets that we see around the world. · Moving to the supply side, we expect the next 10 years to be very different from the last decade. The global supply growth will be concentrated outside China, mostly in Southeast Asia with India and Indonesia leading the way. The new capacity will rely heavily on coal as the energy source, which will increase carbon intensity and also will expose these new projects to future regulatory and cost pressures. These projects required more investment than expansions in China. So, we are hearing capital intensities coming from Indonesia between $2,500 and $3,000/t. While in China, it can be as low as a $1,000/t. This higher price tag means that investors will need stronger prices to justify these investments. In the meantime, the growth on our core markets, North America and Europe, will be limited, which means that the regional deficits will persist and the premiums will remain high on the regions that matter to us. So, in summary, supply is tightening on our core markets while new capacity as elsewhere will face cost and sustainability uncertainties, and both of those things strengthen our competitive position.