Stuart Burns

Barely a week passes without some snippet of news from one university or research lab hitting the media about another battery development heralding a major breakthrough in technology.

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To gauge by the number of announcements we should be enjoying unlimited storage at near-zero cost by now, but according to the journal Nature the reality is the energy density of rechargeable batteries has risen only six-fold since the early lead–nickel rechargeables of the 1900s.

Strong Lithium-Ion Batteries

Modern lithium-ion batteries are ten times cheaper than the first commercial versions sold by Sony in 1991 but, in terms of energy density, Nature says they don’t hold much more than twice as much energy for a given weight. This raises a key issue for some applications: for grid storage, density is not an issue. Capital cost, maintenance and longevity or recharging cycles are paramount.

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Maybe because of Alcoa Inc.’s involvement in the Maadan smelter in Saudi Arabia, recent attention on the Middle East has centered on that production facility, but significant as its 750,000 metric tons is, it will be but part of a much larger regional capacity that has built up in recent years.

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A report from the fourth edition of Aluminium Middle East 2015 states that last year the Gulf region produced 4.83 million metric tons of primary aluminum compared to the 53.06 mmt produced globally. Of that, the United Arab Emirates (UAE) produced 2.3 mmt making it globally the fourth-largest producer accounting for more than 50% of the region’s production.

United Aluminum Emirates

85% of the metal is exported around the world although tax breaks, local metal supply and a buoyant construction infrastructure market have encouraged fast rising local consumption. Consumption for downstream application is growing at 8.4% per year compared to a global average of 3.5% supposedly making the Middle East the fastest growing aluminum market in the world according to the report.

The Gulf has six smelters: Alba, Dubal, Emal, Qatalum, Sohar and EGA, in addition to a growing alumina refining capacity. Although the UAE is nearing production capacity — it produced 2.3 mmt of it’s 2.4 mmt theoretical capacity last year — the management are tight lipped about further expansion plans.

Expansion Beyond Current Capacity

Emirate Global Aluminium’s vice chairman is also CEO of Dubai Electricity and Water Authority, underlining the close interdependency of aluminum smelters to electricity costs and water supply. Although the UAE earns some $3.9 billion in export revenues from aluminum production, it comes at a price in the consumption of vast amounts of natural gas and fresh water.

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There are several potential sources of financial shock to markets this year but for the financial markets an exit from the Eurozone by Greece, while potentially serious, seems to have slipped from the headlines as being very unlikely of late.

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Earlier this year, the press was awash with dramatic headlines on the probability that Greece’s new leftist government, led by the Syriza party, would lead the country out of the euro in protest at the punitive terms placed on the people in return for Europe’s continued support.

Kicking the Greek Debt Problem Down The Road

The domino effect of other ClubMed countries voting in equally anti-austerity parties was raised as the nuclear result of a Greek exit. But the rounds of meetings between Greece and the Troika got so tedious and the progress so glacial that the markets began to lose interest as the problem of how Greece was to repay its debts seemed to be kicked down the road. First by weeks, then by months.

But it would be a mistake to think that the problem has gone away. Central to Greece meeting its terms is the ability of the state to raise sufficient taxes to meet debt repayments when they come due.

The country’s debt pile has risen form 154% of GDP in 2012 to 177% in 2014, that’s a staggering €317 billion (or $336 billion). Syriza’s problem could be said to be of Syriza’s making. The party came into power on a wave of public support and optimism based, in large part, on what they promised in the election campaign, backed by the threat that if the EU didn’t agree Greece would leave the euro.

Campaigning Vs. Governing

Once in office, though, they immediately reversed certain austerity steps but, more significantly, both business and the population positioned themselves for what they expected to happen next. Companies and individuals sent funds overseas in expectation that Greece may leave the euro and any funds held in Greek banks would be converted into Drachma (or whatever would replace the euro) at a much lower rate.

As a result of the cash outflow, the country’s banks are being kept alive through emergency funds (ELA) from the European Central Bank. The ECB has been forced to hike the limits on this cash on a weekly basis as capital has fled the country, a London Telegraph article reports. A further €800 million was drip-fed to banks on Tuesday to keep them solvent. What’s worse is that everyone stopped paying taxes as the money fled Greece.

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How much further do copper prices have to fall? It’s a question challenging producers, consumers and analysts alike.

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In the face of weakening demand from China, prices have slid for much of this year and if Chinese demand, alone, was the sole driver there would be little prospect of ANY support to the price in the short- to medium-term.

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Two apparently unrelated articles should sound a warning for western aluminum producers.

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Following hot on the heels of Alcoa’s prediction that next year will see a global surplus of 326,000 tons this year, compared with the deficit it had predicted as recently as January, due to Chinese exports spurred by overproduction.

Lower Power Costs, Highest Production

An FT article reports that rather than discouraging overproduction, Beijing is cutting power costs across the economy which will have the effect of supporting producers already seeking every opportunity to export downstream products in the face of cooling domestic demand.

Just last week, we were visited by a Chinese producer promoting flat-rolled and extruded products from a new plant to be commissioned later this year. The plant will have a capacity of two million tons of finished aluminum. That one plant will have more capacity than the whole European semi-finished products industry.

Where is that metal going to go? A Bloomberg article suggests the prospects of it being consumed domestically are limited.

Surplus Aluminum Options

“China’s metals demand is plummeting,” said Bloomberg, quoting Kenneth Hoffman, a metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts before writing his report. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”

True, part of this new mill’s specialties will be beverage can stock and Litho sheet, both used in consumer applications, but it also includes some of the largest plate production facilities in the world for which major rail, aerospace and transportation industries are required. Nor of course is this plant alone, it is but one of a dozen being built across China.

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We love new developments for aluminum and this one’s a corker.

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Researchers at Stanford University have developed a flexible, potentially low-cost, fast-charging, long-life aluminum battery. This high performance aluminum-ion battery is formed from two electrodes; a negatively charged anode made of aluminum and a positively charged graphite cathode along with an ionic liquid electrolyte, basically a salt researchers admitted, inside a flexible polymer-coated pouch.

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Along with steel, aluminum was once one of South America’s major growth products and the source of considerable pride for several Latin American countries.

Rapid Decline

But for a variety of reasons, the decline in aluminum output has been rapid and dramatic. A recent Reuters article states that according to International Aluminum Institute numbers, February’s regional run-rate was the equivalent to 1.33 million metric tons per year. A year ago it was 1.80 million. At its peak in 2008, it was 2.70 million tons. South America was once a major exporter of metal to world markets.

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In 1994 Brazil was the third-largest and Venezuela the fourth-largest source of aluminum imports into the United States. Now, both countries import. We recently wrote about the state of the Venezuelan aluminum sector. Chronic underinvestment due to the gradual bankrupting of the once-buoyant Venezuelan economy has left the country’s two smelters a shadow of their former selves.

Venalum had a nominal capacity of 430,000 mt per year but production last year declined to just 110,000 mt and the company has warned customers it can’t even meet internationally expected purity norms for standard P1020 grade. Alcasa, the other plant with a headline capacity of 170,000 mt, is only producing about 29,000 mt.

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Good news for stainless consumers, the nickel price dropped to its lowest level in six years this week as London Metal Exchange 3-month nickel price declined $390, or more than 3%, to $12,540 a metric ton according to the FT.

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After hitting a high in May of last year on expectations that Indonesia’s export ban would create a shortage, the market has declined as the deficit has failed to materialize. Indonesian supply was simply replaced by increased supply from the Philippines, up 23% in 2014 from a year before.

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When will the fall in copper prices come to an end? Even the investment market can’t seem to decide with the Chinese shorting the metal and some western investors still long.

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Certainly those following the trend line downward have done handsomely in the last six months – at least as far as January.

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Is there no end in sight for iron ore miners watching the relentless fall in the price of their product?

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“We hope not,” say consumers and steel mills, for whom the falling raw material cost has been a major element of lower steel prices.

Rio Tinto Group, BHP Billiton and Vale SA are still making money. They are blessed with huge deposits and enormous economies of scale that allow them to dig and ship vast quantities of high grade ore at the lowest breakeven price, but many smaller miners are in danger of slipping into the red and failing to meet huge debt piles they have built up developing mines.

Big Three Race to the Bottom

According to the Sydney Morning Herald today, the iron ore price for immediate delivery at the port of Qingdao in China, dropped 4% on Friday to $53.14 per metric ton, the lowest level since the daily pricing index began in 2009.

The big three are continuing to invest in new capacity hoping to drive out higher cost competitors and gain market share, much like Saudi Arabia and some allies in OPEC are doing with the price of oil.

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