Aluminum may face supply deficit in 2013: Rio Tinto

The global aluminum market will be more balanced this year and could shift into a supply deficit by 2013 as new projects fail to keep the pace with high-cost capacity cuts this year, Rio Tinto Alcan's Chief Executive said Tuesday.

"Supply will become more challenging ... the market will be near a balance this year," Jacynthe Cote said at American Metal Market's Aluminum Summit in New York.

Many higher-cost smelters in the 40-million-tonne-per-year market have struggled to remain profitable after prices plunged almost a third in the past 12 months, to below $2,000 per tonne.

On Tuesday, aluminum hit December lows, roiled by concerns over sluggish demand and high inventories.

Three-month prices on the London Metal Exchange were at $1,960 per tonne on Tuesday, close to or below many plants' breakeven level.

With power accounting for a third of production costs, smelters with long-term steady energy contracts or cheap hydroelectric power can survive the current turmoil.

But many have divested or shut expensive production. Rio Tinto Plc plans to sell 13 assets across six countries, including smelters and alumina refineries worth an estimated $8 billion.

U.S. producer Alcoa Inc. has said it is taking a hard look at the cost profile of its Point Henry smelter, having already announced the shutdown of about 500,000 tonnes of annual capacity at the start of the year.

Norsk Hydro shut its 180,000-tonne per year Kurri Kurri smelter, both in Australia.

"So we are getting closer to a near balanced market. If that trend continues, we could be in a slight deficit next year and the following year because all of the projects are being delayed now," Cote said.

Even so, while producers make cut-backs, many are replacing it with capacity in low-cost regions such as the Middle East.

Alcoa is building its Ma'aden smelter in Saudi Arabia which will open next year and produce 740,000 tonnes per year of aluminum. Many traders say they are also concerned that Chinese output remains high even with the falling prices.

And while Cote sees a long-term supply challenge, demand outlook, primarily from China, is a bright prospect.

China's move last week to cut interest rates for the first time since the depths of the global financial crisis was another sign that the world's leading metals consumer "will continue to track their growth in a very responsible way", Cote said.

Over the next 5 to 10 years, 70 percent of aluminum supply will come from China and close to 25 percent will come from the Middle East, she said.