A sharp decline in North American primary aluminum premiums toward the end of 2006 have been offset by increasingly strong premiums in Europe and steady levels in Asia, Alcan president and CEO Richard Evans said Monday.
Speaking at the BMO Capital Markets 2007 Resources Conference Monday, Evans said looking at aluminum prices, the three main market premiums, namely the US Midwest, European and Japanese, needed to be taken in to account as they made up a substantial part of the overall aluminum price.
He said in the US, North American automotive demand had been in "structural decline in recent years," and this fall in demand had a large impact on the aluminum market there. "We saw a sharp decline in US premiums in late 2006, [implying] weak physical demand relative to supply in the US," he said, adding however, that "increasing strong premiums in Europe, which have moved up to near record levels have offset what has been happening in the US." He noted too that steady Asian demand and premiums had also paid in to overall world demand and in turn premium levels.
The Platts US Midwest Trasnaction premium as of February 23 had risen to 3 cents/lb plus London Metal Exchange cash, delivered Midwest, after falling to a 3.5-year low of 2.25 cents earlier this month. While in Europe premiums remained broad-ranging but firm at $160-200/mt for Good Western, duty-paid, on an in-warehouse Rotterdam basis plus LME cash. The Platts aluminum premium on a CIF Japan basis was at $73.00-74.00/mt at the end of last week, unchanged from the previous week.
Evans said US housing was also a major driver for aluminum demand in North America, not only in terms of construction but also for its use in trucks and transport. He said growth in US housing had been growing to record high levels before heading south in 2006. "We are now down about a third from the peak," he said. Evans noted that due to the decline in these US aluminum market drivers, North America was a less import region than it used to be. "Growth in China is ten times more than what it is in the US on a normalized basis," he said.
Evans said from 2003 to 2006, China had "stimulative policies" for aluminum. "This stimulated growth in production capacity there," he said, noting however, that in 2006 there was a huge swing in the market following Chinese government changes to the rebate system. He said during the last four to five months, the Shanghai price was trading at a discount to the LME price. "The relative profitability of expanding in China has reduced, so in the medium to long-term, production capacity growth there will slow," he said.
Evans said Alcan's strategies for 2007 included its aim to "strengthen and secure" its long-term alumina position. "We have been short in alumina while we have been investing in Gove, but we are hoping to be able to backfill our position at relatively attractive prices," he said.
On January 22 Alcan updated its cost estimate and startup schedule for the Gove expansion to $2.3 billion from $1.8 billion, moving the startup date from the first to the second quarter. The company cited "additional tie-in requirements and weather-related delays" for the late projected start date. The expansion will increase the refinery's capacity to 3.8 million mt/year.
Evans said the group was also "aggressively developing" its pipeline of smelting projects which included Kitimat, British Columbia, its Quebec project, which involved the deployment of AP50 technology, its Iceland project, Sohar in Oman and Coega in South Africa.
Alcan said its $1.8 billion modernization plan for the Kitimat smelter would increase its production by more than 60%, from its current 245,000 mt/year to around 400,000 mt/year, by employing the latest evolution of smelting technology within the AP35 series.
With regard to the group's packaging business, Evan said Alcan saw this divi
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