Reuters reported that global miner Rio Tinto's decision this week to close its Lynemouth aluminium smelter in Britain has highlighted the poor health of an industry pinched by lower metals prices and high costs.
Mr Nikos Kavalis analyst of RBS said that "We have been arguing for some time that aluminium prices are well into the cost curve and that eventually this will result in production cutbacks and closures."
He said that current price levels made more than 40 of aluminum producers unprofitable. Benchmark aluminium prices were around USD 2,111 down almost 25% from USD 2,803 hit in March its highest since August 2008. As such it comes as no surprise that a relatively high cost operation like Lynemouth is being closed.
In October Rio Tinto, one of the world's top producers of aluminium, put up for sale an estimated USD 8 billion worth of facilities across 6 countries, including Lynemouth, only 4 years after buying aluminium giant Alcan.
The speed with which it has decided to close Lynemouth has raised some eyebrows and suggests it may struggle to find buyers for the other operations. But it is fair to say that the plant in northeast England had been under review for some time. The decision to sell the selected assets in the first place is a clear sign of the rising costs facing this industry as the company chose to focus on its lower cost hydro powered plants in Canada.
Mr Daniel Smith analyst of Standard Chartered said that "The fact that they decided to sell aluminum assets is reflecting recent cost pressures in the industry. It's becoming more difficult for companies to produce aluminum profitably."
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