06 MAY 2013Businessspectator.com.au
Chinese heat bends aluminium out of shape
Edited by : AL CIRCLE
2 min read
Business Spectators reported that aluminium is the metal that missed the commodities boom and caught the bust. Alcoa’s announcement overnight that it was considering mothballing or cutting another 11% of its global smelting capacity is further evidence of the industry’s struggle to come to terms with the structural changes in the sector.
Alcoa, which produces about 10 per cent of the world’s raw aluminium, already has about 568,000 tonnes of capacity idled so if the latest review does lead to the removal of another 460,000 tonnes nearly a quarter of its capacity will have been withdrawn from the market. It is also considering cuts to its alumina production which could have implications for its local alumina JV partner, Alumina.
The announcement of the review and its likely conclusions contrast with the more optimistic view Alcoa had of the outlook for demand for the metal and for its pricing at the start of this year. It foresaw acceleration in demand driven by a rebound in China’s growth rate a rate which has since faltered.
Alcoa cited persistent weaknesses in aluminium prices for the latest review, saying prices had fallen more than 33% from their 2011 peak. In fact, since their pre-crisis peak in 2008, they have slumped nearly 50 per cent and Alcoa’s share price by about 80%. Alcoa, of course, isn’t alone. The giant Russian producer, United Company Rusal, plans to cut 300,000 tonnes or 7% of its aluminium production this year and permanently withdraw most of that capacity by 2015.
Rio Tinto has written off nearly USD 30 billion of the value of its aluminium business, most of it relating to the disastrous acquisition of Alcan in 2007. Rio Tinto is still contemplating the fate probably a spin-off of its Pacific Aluminium vehicle of its higher cost Australasian aluminium assets.
In the lead up to the financial crisis, demand for aluminium had been growing quite strongly at a rate of about 8 per cent a year on the back of surging demand from China. The crisis punctured the price but didn’t produce quite the structural response the big Western producers like Alcoa, Rusal and Rio Tinto, and to a lesser extent BHP Billiton, had anticipated.
Alcoa, which produces about 10 per cent of the world’s raw aluminium, already has about 568,000 tonnes of capacity idled so if the latest review does lead to the removal of another 460,000 tonnes nearly a quarter of its capacity will have been withdrawn from the market. It is also considering cuts to its alumina production which could have implications for its local alumina JV partner, Alumina.
The announcement of the review and its likely conclusions contrast with the more optimistic view Alcoa had of the outlook for demand for the metal and for its pricing at the start of this year. It foresaw acceleration in demand driven by a rebound in China’s growth rate a rate which has since faltered.
Alcoa cited persistent weaknesses in aluminium prices for the latest review, saying prices had fallen more than 33% from their 2011 peak. In fact, since their pre-crisis peak in 2008, they have slumped nearly 50 per cent and Alcoa’s share price by about 80%. Alcoa, of course, isn’t alone. The giant Russian producer, United Company Rusal, plans to cut 300,000 tonnes or 7% of its aluminium production this year and permanently withdraw most of that capacity by 2015.
Rio Tinto has written off nearly USD 30 billion of the value of its aluminium business, most of it relating to the disastrous acquisition of Alcan in 2007. Rio Tinto is still contemplating the fate probably a spin-off of its Pacific Aluminium vehicle of its higher cost Australasian aluminium assets.
In the lead up to the financial crisis, demand for aluminium had been growing quite strongly at a rate of about 8 per cent a year on the back of surging demand from China. The crisis punctured the price but didn’t produce quite the structural response the big Western producers like Alcoa, Rusal and Rio Tinto, and to a lesser extent BHP Billiton, had anticipated.
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