As my colleague Taras covered in a recent post, respected analysts (and they don’t come much more respected than Jorge Vazquez of Harbor Aluminum) are predicting several flat months of aluminum prices, as the market remains depressed and risk-averse due to the European debt crisis and fears of a further slowdown in China.
Taras was at the Harbor Aluminum conference and reported the general view of the presenters and attendees was that prices would remain flat until Q4, supported on the downside by the cost of production, but with little or no upward pressure. Everyone has been expecting, predicting, hoping (at least among producers) that capacity cuts would reduce over-supply and provide some impetus for rising prices.
Certainly at current mid-$1,900-per-metric-ton price levels, few producers are making any money. As a recent Reuters article states, only those with low-cost, long-term natural gas or hydroelectric power supply contracts are remaining in the black. As a result, the article reports comments made by Jacynthe Cote, Rio Tinto Alcan’s chief executive, to the effect that the market could be in deficit next year.
Rio is estimating others will follow the group’s divestment or closure of 13 assets across six countries, said to include smelters and alumina refineries, with an estimated worth of US $8 billion. Of course, selling a smelter is not the same as closing a smelter when it comes to global supply, but Rio is not alone in backing out of higher-cost primary production.
As we mentioned recently, Norsk Hydro closed its 180,000-ton Kurri Kurri smelter in Australia, and Alcoa is said to be looking at their 185,000-ton Point Henry smelter, having already closed some 500,000 tons of capacity. However it should not be forgotten that producers are also shifting production to lower-energy-cost regions.
Alcoa is building its 740,000-ton Ma’aden smelter in Saudi Arabia for example, reversing all its closures elsewhere. A trend that will eventually see 70 percent of global supply coming from China and 25 percent from the Middle East, in Jacynthe Cote’s opinion.
Ah, yes — China, the aluminum market unto itself. To be continued in Part Two.