RUSAL wants cuts in global aluminium production

Skyrocketing aluminium output growth, predominantly in China, has led to a global crisis and market overheating. Prices have fallen (to $1800 per tonne), while global output shrank to a four-month low in March. The World Bureau of Metal Statistics estimated aluminium overproduction in January and February 2013 at 317,100 tonnes, despite a fairly rapid increase in demand by 472,000 to 7.6 million tonnes over the same period.

China became the unrivalled dominant force in the aluminium market last year. According to various estimates, it accounts for between 44 percent and 50 percent of global output. What’s more, throughout last year China remained a net importer of unrefined aluminium (to be fair, the difference between its imports and exports was only 7000 tonnes), after exporting more (by 433,000 tonnes) than it had imported the year before. Even though Chinese manufacturers incurred big losses due to overcapacity and falling prices, output of primary aluminium continued to grow in China at the beginning of this year (+15 percent). To be fair, Russia has not stood still either. Exports of unrefined aluminium from Russia rose 5.8 percent in the first quarter of 2013. However, the gain amounted to a modest 1.6 percent for the whole of 2012.

“Now we can already talk about an aluminium overproduction crisis, which is impacting prices negatively. Around 25 percent of the global aluminium capacity is losing money today, which obviously is forcing producers to slash output and shut down inefficient capacity,” RUSAL Strategy and Business Development Director Oleg Mukhamedshin told RIR.

The RUSAL representative believes that the world’s largest producers need to slash production by 10–12 percent to create a situation where prices would within three years be driven by demand. “Otherwise, the crisis in the industry will only get worse,” Mukhamedshin added.

About 60–70 percent of aluminium stored at the LME’s warehouses is intended for financial transactions. “The amount in storage, at around 5 million tonnes, has remained virtually unchanged for several years. According to our estimates, we won’t see a decrease in LME stockpiles before 2014,” Mukhamedshin noted.

He also said that the desire of certain major mining companies to divest from their aluminium assets is a big mistake, because inefficient smelters simply change hands as a result of those deals, while their management issues remain unresolved. “Write-offs of previously acquired assets and ineffective investments in new capacity construction have already cost many CEOs of international metals and mining companies their jobs.”

Demand growth is also projected for construction, which accounted for 27 percent of primary aluminium consumption in 2012. China, the world’s leading construction market, is expected to lead the way there too. RUSAL experts forecast 10 percent growth there. What’s more, emerging markets in South East Asia are expected to post similar growth rates in 2013, according to RUSAL.

The aluminium can and foil sectors (which account for a combined 13 percent of primary aluminium consumption) will keep growing as a result of population growth and the increased use of aluminium in those sectors. RUSAL estimates growth there at 4–5 percent in 2013.