Trafigura, Ormet in Joint Venture to buy aluminum assets

Trading houses like Trafigura and rival Vitol, traditionally the middle men on global sales, are looking to acquire physical assets like aluminum smelters as trading profits shrink and stricter derivatives regulations loom.

Any future acquisitions would also cement Trafigura's position in the 40 million metric ton per year aluminum market, which is dominated by Glencore (GLEN.L) and large producers Alcoa (AA.N), Rio Tinto Alcan (RIO.AX)(RIO.L) and United Co Rusal (0486.HK)(RUA.PA).

For its part, Ormet, a small producer in the global market with capacity to produce about 250,000 metric tons of aluminum a year, has secured a partner with deep pockets to expand as the majors have put high-cost, underperforming assets under review.

"We've agreed this venture at a crucial time for the global aluminum industry. Although this sector continues to grow, some of its major players are divesting non-core assets," Trafigura director Simon Collins said in a statement. The news came as three-month aluminum prices on the London Metal Exchange, which are already down 15 percent so far this year, dropped below $2,000 per metric ton for the first time since mid-December. That level is below break-even for many producers.

Ormet operates an aluminum smelter in Hannibal, Ohio, and in March reopened its alumina refinery in Burnside, Louisiana, which was closed for five years due to low alumina prices. Alumina is a key ingredient for making aluminum. "This is taking Trafigura from pure trading to investing and doing what they do in other commodities. Ormet has been looking for a new partner," said a trader.

The partnership combines Ormet's knowledge of running plants and Trafigura's trading know-how and financial clout. Ormet Chief Executive Mike Tanchuk and Trafigura management grew close as a result of the sale of Ormet's Burnside bulk terminal in Louisiana last year to the trading house for $28 million, a source said.

Trafigura already provides services for Ormet's alumina refinery at the Louisiana site. Ormet did not return calls for comment. A Trafigura spokesman declined to comment beyond the statement.