Mytilineos chairman: Half global aluminum output likely loss-making

More than half the world's aluminum producers are likely losing money at current prices, according to the chairman of Mytilineos Holdings SA, which owns Southeastern Europe's largest producer, Aluminum SA.

"The aluminum industry is bleeding," Evangelos Mytilineos told Dow Jones Newswires in an interview. "Unlike the stock markets, which are going from highs to highs, this is absolutely not the case for commodities, and especially metals. Aluminum, in particular, has a lot of structural weakness," he said.

This is because supply of the metal is outpacing demand, said Mr. Mytilineos. While demand for base metals like aluminum, which is used in products ranging from cars to drinks cans, has been severely dented by the global economic slow-down, production has remained strong, particularly in China, where government subsidies allow many producers to operate at a loss.

Last year, the aluminum market registered a production surplus of 419,400 metric tons, according to the World Bureau of Metal Statistics. The London Metal Exchange's three-month aluminum futures contract currently trades at around $1,976 a metric ton, down over 40% since July 2008.

Australian bank Macquarie expects Chinese aluminum production to grow 10% this year, even though it estimates 35% of smelters in the Asian region are operating at a loss.

"Aluminum is still a market that really doesn't provide any upside other than cost inflation for producers," said Macquarie analyst Ryan Belshaw. While supply remains plentiful, aluminum should continue to trade "at a point of pain for producers," he said.

Unlike some of its competitors, Aluminum SA is currently working near full production capacity, rolling out 170,000 tons of aluminum a year. This is largely due to an aggressive cost-cutting program, launched last year, under which the company has slashed costs across the board.

According to Mr. Mytilineos, Aluminum SA's production costs should total $475 million this year, compared to $620 million in 2011.

Earlier this month, the world's largest aluminum producer United Co. Rusal PLC (0486.HK) announced plans to cut production by 300,000 tons, or 7% of its total capacity, at its "less efficient" smelters by the end of the year, citing low demand for the metal and depressed prices. These cuts would bring Rusal's overall output to 3.8 million tons annually.

Even with recent cost-cuts, Greece's taxation levels still pose a major risk to Aluminum SA's production outlook, Mr. Mytilineos said.

The annual extraordinary taxes that Aluminum SA pays the Greek government were recently increased to EUR50 million from EUR10 million in 2012, as part of Greece's austerity measures. This brings Mytilineos Holdings' total estimated tax bill for 2013 to around EUR100 million, said Mr. Mytilineos. Should taxes rise further, the group's aluminum business could be in jeopardy, said Mr. Mytilineos.

"If [the government] wants to make this figure EUR150 million, it is very likely that we will have to shut [our aluminum business]," said Mr. Mytilineos.