There has been a great deal written about the need to close aluminum smelters during the last six months. No one disagrees that the industry is in over supply. Nor that the accessibility of long term stocks on the LME not withstanding, the fact many producers are losing money at current prices is generally accepted as an imperative to close excess production capacity and bring the supply-demand situation back into balance. This would allow producers to raise prices sufficiently and keep efficient smelters going for the long term. However this is a bit like everyone agreeing we need prisons or refuse incinerators but we don’t want it in our back yard. The question is which smelters get closed.Wwho are the losers and who are the winners? And of course it isn’t just smelters but also alumina refineries and further back up the supply chain bauxite mines. Rightly so economics is often the arbiter. Once the second largest alumina refining country in the world, Jamaica has failed to invest in modernizing its facilities or in developing lower cost power supplies according to the local press. Consequently the country has slipped to fifth in the producers world league tables and faces the prospect of mass closures as reduced work moves on into plant closures. The Russian aluminum company UC Rusal, Jamaica’s plants known as Windalco (formerly Alcan) and Alpat first went onto shorter hours then closed altogether until markets improve. Faced with their own financial problems Rusal has shelved their plans to build a $360m low cost power plant to improve competitiveness at the refineries as alumina market prices slumped. Power in Jamaica is currently produced from oil and 49% of the island’s $2.7bn oil bill is taken up with power generation for alumina refining alone.
As an indication of the knock on effects, Ormet’s Hannibal, the independent Ohio based smelter is suing Glencore, the Swiss based trading company, for non delivery following the latter’s cessation of alumina deliveries under a tolling agreement signed last year according to Reuters. Glencore is claiming force majeure, saying their alumina was coming from guess where, Jamaica, and with deliveries stopped indefinitely they can no longer honor the agreement. If prices and demand for ingot were stronger, Glencore would probably try to bring in alumina from elsewhere but in today’s market it’s easier to walk away.
There may be more bauxite, alumina and aluminum than the world needs, but it isn’t always in the places it’s needed or accessible by those that can consume it. When markets go through such traumatic downturns it is not just the least inefficient that suffer.