Home > News > UK

Aluminum Slump Means 25% of Smelters Losing Money: Commodities

Wednesday, Nov 09, 2011
点击:

 The biggest decline in aluminum prices since the global recession means at least 25 percent of the world’s smelters may be unprofitable.

 
 
The metal fell 23 percent to $2,135.50 a metric ton on the London Metal Exchange since May 1 and energy costs gained 16 percent in the past month. Twenty-five percent of production loses money below $2,350 and 50 percent under $2,000, according to estimates by Bloomberg Industries. About 10 percent of output may be shut by the first quarter, said Jochen Hitzfeld, the analyst at UniCredit SpA in Munich ranked by Bloomberg as the most-accurate price forecaster over two years.
 
 
Alcoa Inc. (AA), the largest U.S. producer, said last week that a “significant” part of global capacity is marginal. Aluminum Corp. of China Ltd. said in October that prices are close to output costs. When demand and prices weakened in 2009, smelters curbed supply by about 5 percent in the first half of the year, according to the International Aluminium Institute. Futures rallied 37 percent in the following six months.
 
 
“In the current environment, where in excess of 20 percent of the industry is losing money, it seems likely that cutbacks will be needed,” said Nick Moore, the head of commodity research at Royal Bank of Scotland Group Plc in London. “The dividend from those cuts will be rising prices.”
 

Price Forecasts
 
 
Aluminum fell 13 percent this year, less than any of the five other members of the LME Index of industrial metals, which dropped 19 percent. Prices will trade at $2,000 to $2,350 in the next six months, according to the median estimate of 17 analysts surveyed by Bloomberg. The MSCI All-Country World Index of equities slid 6.9 percent this year and Treasuries returned 8.9 percent, a Bank of America Corp. index shows.
 
 
The Standard & Poor’s GSCI gauge of 24 commodities fell 13 percent since the end of April on mounting concern that slowing economic growth will curb demand for raw materials. Aluminum consumption will expand 7.7 percent this year, compared with 19 percent in 2010, Barclays Capital predicts. The London-based IAI estimates global production reached a record daily rate in September and Morgan Stanley anticipates a 690,000-ton surplus this year, enough for more than 10,000 Boeing 747-400s.
 
 
Producers are also contending with rising energy prices, which account for 30 percent to 40 percent of smelting costs, according to Brook Hunt, a London-based research unit of Wood Mackenzie. Crude oil traded on the New York Mercantile Exchange rallied 21 percent since the start of October as aluminum dropped about 2 percent on the LME.
 
 
The Bloomberg Industries estimate of profitability includes alumina, power, transportation and labor and excludes depreciation and amortization.
 

Eight Analysts
 
 
“With LME pricing in the $2,200 range, we believe a significant amount of the industry’s global capacity is marginal,” Michael Belwood, a spokesman for Alcoa in New York, wrote in an e-mailed response to questions. The company will report a 57 percent drop in fourth-quarter profit to $110.3 million, according to the mean of eight analyst estimates compiled by Bloomberg.
 
 
Premiums paid by consumers for immediate supply in the U.S. Midwest rose 36 percent this year, a sign less metal was available, according to data compiled by Bloomberg Industries. While inventories in warehouses monitored by the LME reached a record 4.71 million tons in May, as much as 80 percent is tied into financing deals, according to Credit Agricole SA.
 
 
The transactions typically involve a simultaneous purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, when contracts with later delivery months cost more than nearer-dated metal.
 

‘Tight Range’
 
 
“Looking at aluminum, you realize that there is so much on stock, but there is so little available,” said Christoph Eibl, who helps manage $2.5 billion of assets at Tiberius Group in Zug, Switzerland. “It’s an engineered market, and that’s why the market is trading in such a tight range.”
 
 
Premiums also advanced because the rate of deliveries from the biggest warehouses was so slow that customers were waiting as long as seven months to withdraw metal from LME-approved warehouses in Detroit in July. The LME plans to increase the minimum rate at which metal must be delivered in April after some clients said the backlogs were distorting prices.
 
 
The smelter cuts during the recession may not be repeated now because prices haven’t fallen by the same amount globally and premiums are boosting revenue for smelters, said Nicholas Snowdon, a commodities analyst at Barclays Capital in New York.
 
 
Aluminum averaged $2,482 in London this year, compared with $1,705 in 2009. Prices on the Shanghai Futures Exchange did even better, averaging 16,989 yuan ($2,677) a ton. Stockpiles monitored by the bourse in China, a nation which accounts for about 40 percent of global output, fell 72 percent this year.
 

Aluminum Consumption
 
 
The world economy will expand 4 percent this year and next, compared with a 0.7 percent contraction in 2009, according to the International Monetary Fund. China, accounting for two in every five tons of global aluminum consumption, will grow 9 percent next year, the Washington-based group estimates.
 
 
That would still be slower than the 10.3 percent expansion China saw in 2010, when aluminum advanced 11 percent. Shares of Beijing-based Aluminum Corp. of China, the country’s biggest producer, fell 39 percent in Hong Kong trading this year. Aluminum prices are close to production costs, President Luo Jianchuan said in a statement Oct. 24.
 
 
Smelters in China and Europe may be the first to cut back, RBS’s Moore said. Western European producers reduced output by 22 percent from December 2008 to June 2009, while China’s supply dropped 25 percent from August 2008 to January 2009, according to the IAI.
 
 
Norsk Hydro
 
 
Norsk Hydro ASA (NHY), Europe’s third-biggest aluminum producer, told investors in a report Oct. 27 that it had no plans to restart shuttered capacity for now because of “macroeconomic instability and market uncertainty.” Hydro, based in Oslo, cut smelter output by 26 percent to 1.25 million tons in 2009. Shares of the company fell 30 percent this year.
 
 
“There are signs that we are seeing a more disciplined approach from producers in balancing supply and demand,” said Peter Richardson, the chief metals economist at Morgan Stanley in Melbourne. “A price rebound has to be driven by a relatively disciplined supply position, but, more importantly, a strong recovery in demand.”

Recommended exhibitions

16TH ARAB INTERNATIONAL ALUMINIUM CONFERENCE
  ARABAL, which is being organized and hosted by Qatalum, is the premier trade event for the Middle East's aluminium i......
Aluminium 2012
  ALUMINIUM is the leading B2B platform in the world for the aluminium industry and its main applications. This is whe......
The 4th edition of Zak Aluminum Extrusions Expo
 Date

  14th - 16th December 2012

  Venue

  Pragati Maidan,

  New Delhi,India.

  Exhibition Timings

 ......
ALUMINIUM DUBAI 2011
Name:ALUMINIUM DUBAI 2011
Time:2011-5-9 to 2011-5-11
Place:Dubai International Convention & Exhibition Centre, Dubai, UAE......