Shanghai Metals Market
Update-Rio Lynemouth Move Signals Aluminum's Ailing Health
Edited by : AL CIRCLE
2 min read
Global miner Rio Tinto's decision this week to close its Lynemouth aluminum smelter in Britain has highlighted the poor health of an industry pinched by lower metals prices and high costs.
"We have been arguing for some time that aluminum prices are well into the cost curve and that eventually this will result in production cutbacks and closures," RBS analyst Nikos Kavalis said.
Citing data from consultancy Brook Hunt, the metals arm of Wood Mackenzie, he said current price levels made more than 40 percent of aluminum producers unprofitable.
Benchmark aluminum prices were around $2,111 on Friday, down almost 25 percent from $2,803 hit in March, its highest since August 2008.
"As such,it comes as no surprise that a relatively high (and potentially rising) cost operation like Lynemouth is being closed," Kavalis added.
In October Rio Tinto, one of the world's top producers of aluminum, put up for sale an estimated $8 billion worth of facilities, across six countries, including Lynemouth, only four years after buying aluminum giant Alcan.
The speed with which it has decided to close Lynemouth has raised some eyebrows, and suggests it may struggle to find buyers for the other operations. But it is fair to say that the plant in northeast England had been under review for some time.
The decision to sell the selected assets in the first place is a clear sign of the rising costs facing this industry as the company chose to focus on its lower cost hydro-powered plants in Canada.
"The fact that they (Rio) decided to sell aluminum assets is reflecting recent cost pressures in the industry...It's becoming more difficult for companies to produce aluminum profitably," said Standard Chartered analyst Daniel Smith.
Power costs --accounting for 30 to 50 percent of the cost to produce aluminum -- are high, while at the same time weaker prices and slowing demand have squeezed companies' margins.
An inability to secure long-term cheap power recently prompted U.S. aluminum major Alcoa's decision to abandon long-held plans to build a new smelter in Iceland, citing an inability to secure long-term cheap power.
"We have been arguing for some time that aluminum prices are well into the cost curve and that eventually this will result in production cutbacks and closures," RBS analyst Nikos Kavalis said.
Citing data from consultancy Brook Hunt, the metals arm of Wood Mackenzie, he said current price levels made more than 40 percent of aluminum producers unprofitable.
Benchmark aluminum prices were around $2,111 on Friday, down almost 25 percent from $2,803 hit in March, its highest since August 2008.
"As such,it comes as no surprise that a relatively high (and potentially rising) cost operation like Lynemouth is being closed," Kavalis added.
In October Rio Tinto, one of the world's top producers of aluminum, put up for sale an estimated $8 billion worth of facilities, across six countries, including Lynemouth, only four years after buying aluminum giant Alcan.
The speed with which it has decided to close Lynemouth has raised some eyebrows, and suggests it may struggle to find buyers for the other operations. But it is fair to say that the plant in northeast England had been under review for some time.
The decision to sell the selected assets in the first place is a clear sign of the rising costs facing this industry as the company chose to focus on its lower cost hydro-powered plants in Canada.
"The fact that they (Rio) decided to sell aluminum assets is reflecting recent cost pressures in the industry...It's becoming more difficult for companies to produce aluminum profitably," said Standard Chartered analyst Daniel Smith.
Power costs --accounting for 30 to 50 percent of the cost to produce aluminum -- are high, while at the same time weaker prices and slowing demand have squeezed companies' margins.
An inability to secure long-term cheap power recently prompted U.S. aluminum major Alcoa's decision to abandon long-held plans to build a new smelter in Iceland, citing an inability to secure long-term cheap power.
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