Bank of America Securities estimates global demand for aluminium will fall by 7.2% year-on-year in 2020 while supply will likely increase by 2%.
Prices for the metal already have plunged by 19% so far this year, the bank warned, and "the combination of outright production increases and falling consumption is not sustainable in our view."
COVID-19 "has severely impacted global activity," BofA Securities said in an April 13 research note to clients. "The scale of the headwinds has been visible in China, where consumption has fallen by 20% year-on-year in January and February."
By contrast, China's offtake fell by just 3.1% year-on-year at the height of the financial crisis of 2008-2009, the report's analysts stated.
BofA Securities estimates that under the current status quo, the global aluminium market "could be oversupplied to the tune of 4.7 million tonnes this year, with surpluses potentially building in 2021 and 2022. As such, and beyond some cosmetic supply cuts so far, smelters need to curtail output more aggressively to restore some normalcy on the aluminium market."
The bank's analysts also noted that given China exports about 3 million tonnes a year, "the Asian country may have to do more of the heavy lifting here."
BofA noted that Rusal, a major aluminium producer, has stated that some of its customers in the auto-making and construction sectors declared 'force majeure' last month and asked for cuts or delays to their order books.
The bank estimates car sales "are set to decline by 20% year-on-year in 2020."
BofA pointed out that the "closure of coal-fired aluminium smelters could be one possible solution to restore normalcy on the aluminium market, while at the same time helping to decarbonize the global economy."
About 10 million tonnes of coal-powered smelters "are in the fourth quartile of the cost curve, which seems sub-optimal," and "shuttering some of these could eliminate the surpluses."