Alcoa Corp. shares posted the biggest decline since mid-2018 after the top U.S. aluminum producer reported a wider-than-expected loss and said it sees global output of the metal outstripping demand this year.

The forecast for a surplus adds urgency to the company’s cost-cutting drive after a fourth straight quarterly loss. The oversupply of metal will be fueled by production in China, according to the company’s forecast.

Aluminum prices have slipped amid trade tensions and a slowdown in manufacturing worldwide, and Alcoa’s forecast suggests further declines may be in store. The Pittsburgh-based company has been taking steps to counter weak prices by shedding assets and getting leaner, saying in October it would sell non-core businesses to generate as much as US$1 billion in net proceeds.

“China overcapacity remains a problem for the aluminum market with no change on the horizon,” Jefferies LLC analysts including Christopher LaFemina said in a note. “While Alcoa is taking actions to cut costs and drive productivity, weak aluminum market fundamentals and a lack of free cash flow are concerns.”

Shares fell 12% to close at US$17.78 in New York, the biggest decline since July 2018 and the worst performance on the Russell 3000 Index. Alcoa’s statement was released after the close of regular trading on Wednesday.

Alcoa projected global aluminum supply will exceed demand by as much as 1 million metric tons in 2020, fueled by production in China. That compares with a deficit last year of 900,000 tons to 1.1 million tons.

Worldwide demand growth will be in a range of 1.4% to 2.4% this year. The company’s final aluminum estimate for 2019 was a decline of 0.2% to 0.4%.

Still, the increase in demand won’t be enough to absorb excess supply.

“In aluminum, Chinese overcapacity continues to challenge the global market,” Alcoa Chief Executive Officer Roy Harvey said on the company’s earnings call with analysts Wednesday. “The excess supply of Chinese semis will be exported to the world,” effectively displacing primary aluminum in those markets, he said.

The so-called phase one trade deal the U.S. signed with China on Wednesday may be cause for optimism.

“There are catalysts for positive change,” Harvey said, citing “recent developments that we’ve seen with China, and particularly if we start to advance toward a phase two part of the deal. I think that gives us the catalyst for improvements happening more quickly.”