In case you’ve been in a cave, sheltered from the aluminum market’s precipitous dive, here’s a timeline snapshot:
- September 28th: Alcoa announces the company would split in two. The firm found that its legacy smelting business, the company’s vertically integrated structure, is not the advantage it once was.
- October 28th: 3-month London Metal Exchange aluminum falls as low as $1,460 per metric ton, the lowest price since June 2009.
- November 2: Alcoa announces it would reduce aluminum smelting capacity by 503,000 mt and alumina refining capacity by 1.2 million mt, beginning in Q4 2015 and completed by the end of Q1 2016. The announcement is one more step by Alcoa to remain competitive in one of the toughest periods for aluminum producers in history.
According to Reuters, Alcoa’s cuts, coupled with recent announcements by Century, make up 30% of US aluminum production and will leave just 4 smelters operating in the nation, with capacity to produce 759,600 mt per year. That’s the lowest output since the 1950s.
Aluminum prices have plummeted thanks, in part, to a glut of Chinese exports. Despite low prices, analysts still remain skeptical that Chinese producers will cut production as local governments are very determined to keep smelters open. Although some high-cost smelters have cut production, China continues to add production in the west side of the country, where coal-based power is cheaper.
On top of that, American producers are suffering even more as aluminum midwest premiums have dropped more than 70% on the year to date. Alcoa’s cuts might be a step in the right direction to combat the global surplus and could also give some support to premiums since Alcoa’s latest round of supply cuts are from its US smelters and the 500,000 mt represent around 10% of annual consumption in the US.
What This Means For Metal Buyers
Although the cuts could impact MW premiums, they won’t likely have a long-term impact on aluminum prices. With a strong dollar and the huge amount of aluminum leaving China every month, any major upside in aluminum prices currently looks dim. Even if these production cuts make prices rise, Chinese exports would likely just start rising again, putting pressure on prices.
Actual Aluminum Prices
- Chinese aluminum scrap finished the month at $1,777 per metric ton, a 11% decline from last month.
- European 5083 plate prices fell by 1.7% to $2,964 per metric ton.
- Korea 1050 aluminum rose 4.1% over the past month to $2.89 per kilogram.
- The LME aluminum primary 3-month contract fell 6% to finish the month at $1,479/mt