New Aluminum Smelters Coming On-stream Adding to Surplus

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Dubai plans to have the first phase of what will be, on completion, the largest aluminum smelter in the world at 1.4 million tons per annum capacity by this December. It is expected the plant will be completed and fully operational between 2013 and 2014 according to a Reuters report. As Chinese smelters have ramped production back up this year, capacity is expected to reach 20 million tons. Last year, China produced 13 million tons according to the article. Although there were many smelters idled at the end of last year and early this year around the world, a fair number have been brought back on stream as prices have risen. Rusal may face problems this winter securing sufficient electricity for their Sayanogorsk and Khakassia smelters following the fatal failure of the Sayano-Shushenskaya hydroelectric dam as we reported at the time. But at worse this puts some 500,000 tons of capacity at temporary risk. Emirates Aluminium Dubai smelter will come on stream right on cue to more than take up the slack – if 4.6 million tons of world LME stock can be termed slack. Increases in stock have slowed as the summer approached but there is a ticking time bomb in that much of the metal in warehouse is held under a medium term financing scheme that matures in the spring of 2010. If the same disparity between spot and twelve months prices no long exists at that time, the deals cannot be profitably rolled over resulting in a probable sale. Qatalum a JV between Qatar Petroleum and Norsk Hydro are on track to bring a 580,000 ton smelter on stream by mid 2010. If gas supplies can be secured, the plant could be developed further to 1.2 million tons but thankfully no timescale has been set for that. The world really doesn’t need any more smelter capacity at the moment.

Rusal may face problems this winter securing sufficient electricity for their Sayanogorsk and Khakassia smelters following the fatal failure of the Sayano-Shushenskaya hydroelectric dam as we reported at the time, but at worse this puts some 500,000 tons of capacity at temporary risk. Emirates Aluminium Dubai smelter will come on stream right on cue to more than take up the slack – if 4.6 million tons of world LME stock can be termed slack. Increases in stock have slowed as the summer approached but there is a ticking time bomb in that much of the metal in warehouse is held under medium term financing scheme that mature in the spring of 2010. If the same disparity between spot and twelve months prices no longer exists at that time the deals cannot be profitably rolled over resulting in a probable sale and possibly a price collapse.

Gayle Berry, an analyst at Barclays Capital said in a Reuters report last week that she saw a surplus building quickly early next year as smelter production caught up with and overtook consumption. Many were surprised when aluminum peaked over $2100 per metric ton this summer, the commissioning of new smelters, restarting of old ones and the continuing size of global metal stocks all support the price remaining below $2000/ton in 2010.

–Stuart Burns

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