Best of Aluminum: How Boeing Buys It, How Alcoa Profits From It

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Through 2013, amidst the highs and lows of the aluminum market and the ensuing LME warehouse scandal, our most-viewed aluminum-related piece was this killer infographic:

LME warehouse scheme infographic

But of course, there were some killer stories as well:

1. How Aluminum Producers Profit from the LME Warehousing Scheme

…Aluminum buying organizations may wish to note the distinction between primary ingot producers (Alcoa, Century, Noranda and Ormet, etc.) and semi-fabricated product producers (Novelis, Sapa Group, and the downstream operations of Alcoa). Semi-fabricated product producers, particularly those that remain non-integrated, purchase ingot from the primary producers and, like their customers, also face long load-out times and higher premiums.

In other words, the semi-fab producers and downstream supply chains all sit in the same boat. However, the semi-fab producers no longer rely upon the LME warehouse system for metal (they purchase much of their requirements under long-term contracts directly with producers and traders)…

2. How Boeing Buys Aluminum: Metal Prices and Raw Material Cost

…Although Jeff did not disclose to us exactly how much money Boeing spends per year on their aluminum buy, or what some of the biggest metal cost components are for Boeing in general, citing confidentiality, he did shed some light on how Boeing manages their metal spend.

MetalMiner: How do you tend to buy your aluminum (through which channels, how do you hedge your aluminum spend, etc.)?

Jeff Carpenter: Purchase of aluminum for our supply chain is handled directly by Boeing through our aggregator, TMX. This enables us to reduce costs, control quality and ensure inventory to meet our increasing production schedules. To further this strategy, we have recently begun a new program to revert scrap aluminum and return it to our supply chain…

3. Aluminum Price Outlook: Oversupply Breaking the Bank for Primary Producers

…The curse and the cure could be the early end of taper relief and, perversely, a rise in interest rates. If rates rise significantly enough to choke off the stock-and-finance trade, metal availability will increase, reducing physical delivery premiums.

Currently around 25% of primary mills are believed to be losing money; if prices collapse further, that could rise as high as 50%, in which case mass closures or idling of capacity will result and ultimately so will a recovery in prices.

Which producers will emerge still in business, of course, is another question. Either way, primary aluminum production is not an enviable business to be in at the moment…

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