For the year 2000 we are positive on sales and earnings prospects for the aluminum industry. We surmise that the 996,000 metric ton surplus of production over consumption for 1998 declined in 1999 as a result of a stronger global economy. Higher aluminum prices resulting from greater global consumption will boost profits. Besides increased consumption, another factor leading to higher aluminum prices in 2000 is rising alumina prices.
Alumina is the raw material used to make aluminum ingot.
As a result of an unplanned outage at Kaiser Aluminum, alumina prices rose sharply in 1999's second half and this will lift aluminum prices in 2000. While the aluminum industry still suffers from excess capacity and continued high levels of exports from Russia, we believe that the industry consolidation taking place should mitigate the structural glut. Assuming Alcoa and Alcan complete their respective acquisitions by mid-2000, idle aluminum production capacity totaling some 647,000 metric tons will come under the control of two companies rather than five. Accordingly, restart of idle capacity in response to stronger market conditions will be easier to control and more restrained than in the past. This should reduce the cyclical volatility of industry prices and profits.