Week-in-Review: Aluminum Surges, Rio Replaces CEO-in-Waiting

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prima91/Adobe Stock

This week in metals, aluminum prices hit a one-month high, even as surplus material in China looked like it would increase as smelters there went back online.

Two-Month Trial: Metal Buying Outlook

Even when metals prices were rising across the board in the first quarter, aluminum was the laggard as oversupply still kept investors from buying it and construction demand remained tepid. Thanks to Chinese stimulus that construction demand has shot up and aluminum prices with it.

Aluminum: Smelt All You Want!

Reuters’ Andy Home and our own Stuart Burns both noted that while Beijing is doing everything it can to clean up overproduction in its steel sector — and the resultant pollution that comes with it — there’s no such commitment from the top when it comes to aluminum, mostly because of the state-of-the-art smelters Chinese companies have invested in.

How are Chinese smelters making money? Source: Adobe Stock/Pavel Losevsky

How are Chinese smelters making money? Source: Adobe Stock/Pavel Losevsky.

So, to recap, steel overproduction and pollution is bad but aluminum overproduction and, relatively, smog-free smelting? China is a-okay with that. What could possibly go wrong?

Rio Repositions

Meanwhile, things have gone significantly awry at Rio Tinto Group. The Anglo-Australian multinational miner shook up its organizational structure this week and head of iron ore commodities Andrew Harding was passed over for the CEO job by copper and coal division leader Jean-Sebastian Jacques. Jacques, a native of France, has only been there since 2011. Harding has been with Rio for 25 years and had been expected to replace departing CEO Sam Walsh this month.

Harding seems to have been a victim of poor timing. Even though he was Walsh’s handpicked successor, Rio is one of many miners actively trying to move away from the stagnant iron ore market. Coal might not be a growth market, but as “energy” its leadership is more in line with Rio’s future than iron ore.

The restructuring at Rio means the coal and copper unit is no more. Coal moves into a new Energy & Minerals division. It would appear that energy inputs are Rio Tinto’s future and iron ore is its past. This follows another trend we’ve seen. While coal, itself, is not growing (at least in the U.S.) as an energy input, it still has much more potential to serve existing plants than, say, iron ore which can more readily be replaced as a steel input by available scrap steel.

If anyone doubts the healthiness of energy markets, they should consult this week’s decision that invalidated the Obama administration’s attempts to set rules for hydraulic fracturing — for both oil and natural gas — on federal lands. The plaintiffs were not just the oil and gas-rich states of Colorado, North Dakota, Utah and Wyoming, but also the Ute Indian Tribe. The Ute tribe wanted energy exploration on its reservation to be free of federal intervention, just like four state governments because they know those resources have value.

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