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RE: Aluminum traders to Producers: Cut like its 1994!

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Charles Randall

Here is a really ominous article for both Aluminum industry smelters and the Refinery Green Anode producers.
If traders and market prices are looking for cuts larger than those made during bottom recession and expecting it to be levels of 1994, then its doubtful much of western production is going survive. This article also claims current smelters are still losing money at $2000/mt price level – a long way above 2008’s $1300/mt and barley above its 2009/10 recovered price $2400/mt.

The traders calling for 1994 level cuts are of course idiots – its way too early to jump off the building for that level amputation, save it for consolidation coming as Middle East and China smelters fight to maintain the market share they have over-produced to gain.
This article also has short but good recap of Soviet collapse Berlin wall & along with it global aluminum industry as market tried make room for metal no longer pointed at military demands.

The article also has right term on the 1994 event – aluminum producers did collude thru the arms of their governments using a “MOU” to carry out price fixing and circumvent anti-trust laws they destroyed other industries with. It is joke that just few years afterward full weight governments came down upon Graphite Electrode & Needle coke producers for doing much less by comparison.
Neither governments nor Presidents/Leaders should have the right to pick & chose which laws & which industries they want to apply.

It is doubtful they will get to do repeat on 1994 MOU anyway for number reasons:
1) Global Anti-trust laws are much stiffer & not so easily circumvented,
2) China now represents nearly 40% of Aluminum market (any major producer with CR ratio above 40% indicates consolidated industry), Russia 12% and India 20% – so Alcoa/Alcan US & EU cuts wont make much of dent
3) China was 1/10th of current production back in 1994, and many of countries were already phasing out the Soderberg Smelting plants – which they were able to accelerate under MOU and those capacity cuts were already going happen but be replaced short time by modernized Prebaked new capacity. Only 1-5% global capacity today is Soderberg and majority of it is idled or process of shutting down. Cuts now will be hard cuts that end up being regional shifts with the closed plants not likely to come back.

The really bad part of this for smelting capacity will be that the lower demand and lack pricing support for anode petcoke will hasten the refineries already switching to fuel or trying keep partial anode capacity as future option from recent expansion. As I have mentioned previously since 2000 we have lost nearly 32 anode or calcinable producers – nearly 1/3 in China, many are still producing some type quality but only because of short term crude economics. Alcoa may regret using Inert Anodes as negotiating ploy & not getting some new grassroots smelters operating few potlines of Inert’s (its been over 12 years now but still only Pittsburg/Massena have few “commercial” potlines).

The US is going see lot more Canadian Crude show up in 2H 2012 thru 2013 time frame as Pipelines are reversed or connect with Cushing glut and move it into Gulf and other refineries and several of delayed major coker expansions have or will finish in 2012/2013 time frame (like Woodriver, Port Arthur, Whiting, Toledo). Other refineries are having their fates ~sealed like Yorktown sold to Pipeline company to become terminal and coker dismantled/salvaged. Prior to mid 1990’s most cokers outside the US were installed by Government owned refineries to make anode coke to support their aluminum & metals industries – so we are in effect going “Back to Future” .

It is like watching a building or bridge being demolished as charges take out one support column after another until it collapse upon itself.

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