November 11, 2008 at 10:16 am #3319
Alcoa cuts more aluminum output to fight glut
JAMES REGAN Reuters
November 11, 2008 at 7:24 AM EST
SYDNEY – U.S. aluminum giant Alcoa Inc. has slashed a further 350,000 tonnes of aluminum-making capacity worldwide, the latest cutback by a major producer in the face of deteriorating markets.
Alcoa said it needed to make the cuts across its global smelting system because demand for aluminum was waning, bringing the amount of tonnage it had taken off line to 615,000 tonnes, or 15 per cent of its total capacity.
The cuts still trail the 720,000 tonnes cutback by China’s largest producer, Aluminum Corp. of China (Chalco), announced last month. “The situation in China is very different today than it was just a few months ago, with industrial activity down dramatically,” said Australia & New Zealand Bank chief commodities strategist Mark Pervan.
The world market for aluminum stands at around 40 million tonnes a year, the Australian Bureau of Agricultural and Resource Economics says.
Until now, China has shouldered the deepest cuts, which have led to a number of higher-cost smelters being idled this year. But as the financial crisis bites deeper into global industrial activity, such responses are broadening.
Another top producer, Rio Tinto, is reviewing a $10.6-billion (U.S.) aluminum joint venture with Saudi firm Maaden as part of a reassessment of its entire aluminum business, and sources close to the project say it could be delayed by up to two years.
“We are looking at the technical and financial feasibility of all our projects, this is not unique to Maaden,” Dick Evans, head of Rio’s aluminum business, told Reuters in Dubai. This time last year, Rio plunked down $38-billion to buy Canadian aluminum producer Alcan, easily trumping a $27-billion offer Alcoa had on the table, saying it wanted to be the world’s biggest producer. In Brazil, Vale is cutting output at its Valesul Aluminio plant in Rio de Janeiro to 40 per cent of its 95,000 tonnes annual capacity.
Norwegian producer Norsk Hydro said it may shut earlier than planned an old potline at its Karmoey plant as part of its planned capacity cuts. The group said it was reviewing its operations globally for further production cuts.
Aluminum prices have plummeted by more than 40 per cent to around $1,995 a tonne on the London Metal Exchange since July as demand from industries as far afield as aerospace and soda cans has shrivelled up. Inventories held in LME warehouses have ballooned to 1.55 million tonnes, equivalent to more than half the yearly output of Australia, a major supplier.
“Cuts, such as the one by Alcoa, and the Chinese stimulus package, could help the market, but it will take time to work off the massive inventory build-ups,” Investec Resources analyst Darren Heathcoate said.
“The question for Alcoa and others is how close are they to their cost of production margin,” said Mr. Heathcoate. Alcoa last month cut output at its 265,000-tonne-per-year smelter in Rockdale, Texas.
“The industry is in surplus and has experienced an unprecedented fall in aluminum prices over a very short period of time,” executive vice president Bernt Reitan said in a statement.
“While we continue to see a strong long-term outlook for aluminum consumption, we are taking a series of actions to address the current market conditions, including targeted cost reductions across our system and reducing production,” he said.
The latest reductions will occur via partial potline closures and by modifying power usage, Alcoa said. The curtailments will include smelters in Ferndale, Washington and Baie Comeau, Quebec, according to Alcoa. After the cuts, Alcoa’s new annualized smelting production rate will be around 3.5 million tonnes, it said.
As part of its reassessment, a $1 billion-plus expansion of Australia’s Wagerup alumina refinery has been suspended, Alcoa’s Australian partner, Alumina Ltd, said on Tuesday. The expansion would have raised the refinery’s annual alumina output by 80 per cent, to 4.7 million tonnes.
Alumina is a minority partner in the Alcoa World Alumina and Chemicals group, majority owned by U.S.-based Alcoa.
November 11, 2008 at 10:18 am #6460
Here is update on Aluminum industry about cutbacks to fight deteriorating demand, growing glut & growing inventory. The LME aluminum inventory has topped 1.5 MM kmt (~1/2 years worth Australia’s production) despite ongoing cutbacks of 720 kmtpy in China, 265kmt now increased to 615 kmt by Alcoa, 38 kmt by Valesul and several others looking at delaying new smelting capacity.
It will not take long for this to translate into a minimum of 500 kmt calcined petroleum coke (~2 calciners CPC) of lower demand for use globably (~720+615+38=1373 X0.36 kmtAL/kmt CPC=494 kmt CPC). Since refineries are cutting back and taking shutdowns early due to bad margins it is likely to be a wash except for the long supply lag between coker production to stored calcined coke for shipment, so look for both green and calcined coke inventories to grow in 4Q 2008.
You must be logged in to reply to this topic.