Aluminum Prod cuts 4.5 MMmtpy – not enough

[Charles RandallParticipant]

<Here is article similar to todays WSJ version on 4.5MM mtpy Aluminum cuts that isnt going to be enough kickstart recovery (sounds familar with Oil Producers cutbacks doesnt it).  Mid article has global table totals by company – 4.5 MM mtpy Aluminum equal loss demand for ~1.8MM mtpy CPC petcoke or 2.4 MMmtpy green petcoke & power supplies as well- CER.>
 
Lack Of Aluminum Output Cuts Means Long Recovery Path
DJ FOCUS: Lack Of Aluminum Output Cuts Means Long Recovery Path

By Andrea Hotter

LONDON (Dow Jones)–Unless large aluminum producers make deeper cuts in
output instead of waiting for their peers to do the job for them, prices will
take years to recover from their current slump, industry executives said.

Producers are privately warning that this game of brinkmanship, in which just
10% of world aluminum output is slated to be taken off-line, is likely to
create long-lasting damage to the sector.

Most companies have shown production restraint, albeit sometimes by default,
such as when plants break down or experience problems with power supply. Yet
aside from U.S. aluminum giant Alcoa Inc. (AA) and Netherlands-based Vimetco NV
(VICO.LN), no other western producer has announced a cut of the size needed to
make a real difference to the market.

Middle Eastern producers such as Dubai Aluminium and Aluminium Bahrain
haven’t announced cuts, and nor has India’s National Aluminium Co. Ltd.
(532234.BY). Mining giant BHP Billiton PLC (BHP) has reduced output in South
Africa by 120,000 tons, but only in response to trouble getting power from
local utility Eskom.

Norsk Hydro ASA (NHY), meanwhile, has simply brought forward a long-scheduled
potlines closure in Norway by a few months. The bulk of Rio Tinto PLC’s (RTP)
200,000 tons of cuts are the result of a transformer problem at its smelter at
Tiwai Point, New Zealand.

On the face of it, the amount of world production being cut sounds sizable
enough. As much as 4.5 million metric tons of aluminum is estimated to have
been removed from production schedules as companies react to the global
economic downturn and slumping metal prices.

Some companies outside China may even have taken more output off-line than it
seems, producers told Dow Jones Newswires. Others are less straightforward to
keep track of. UC Rusal’s cuts, for instance, jump to 4% to 7% of total company
output when the closure of its Zaporozhye complex in Ukraine is taken into
account.

But the crux of the problem is that consumption has collapsed by far more
than the reduced supply. Transportation and construction, two of the biggest
uses of aluminum, have been badly hit by the economic slowdown, with the
automotive sector especially affected. Analysts estimate production will still
exceed demand by at least 3 million tons after these cuts, while official
stocks are already at 15-year highs.

“Given the sizable overcapacities, the risk is that producers, especially in
China, curtail output insufficiently, which means that the aluminum markets may
have just entered a period of protracted fundamental weakness,” said
London-based BNP Paribas analyst Michael Widmer.

The exceptions are few and far between. As the world’s largest producer of
primary and recycled aluminum, Alcoa has taken some 18% of its total global
smelting system out of production, the equivalent of 750,000 tons.

“We’ve been around for 120 years and we’ve been through downturns before and
know how to work through them,” said Alcoa spokesman Kevin Lowery. “We
anticipated the declines in the market and we were the first to begin
curtailment in the summer of 2008 with Rockdale (in Texas), but we’ve expanded
that now to continuously adjust capacity with demand,” he added.

Lowery said that in making cuts, Alcoa considers the way to best maximize
cash, but also how to ramp down quickly and efficiently, with the flexibility
to be able to ramp back up quickly when the economy recovers.

Vimetco, meanwhile, plans to remove more than 40% of its global production
capacity from the market, or around 385,000 tons. The bulk of the cuts are in
China, with the rest in Romania.

Instead of headline-making production cuts, other western producers prefer to
lock up metal in warehouses, attracted by lucrative financing deals, said
people familiar with warehousing.

To be sure, any cuts are a step in the right direction and have prevented
aluminum from falling as far as some of the other industrial metals, whose
production cuts have been proportionally far smaller.

Aluminum prices on the London Metal Exchange have halved since their peak in
July at $3,380/ton. By comparison, copper, zinc and lead are at close to a
third of their peak value, while nickel is less than a quarter of its former
high.

Yet analysts estimate growth in demand for aluminum was down by 2.5% in 2008
and is likely to fall even further in 2009, meaning the aluminum cuts restrict,
but don’t remove, the growing market surplus.

“The market is facing a massive inventory surplus, and this will take a very
long time to work off,” said Macquarie Bank analyst Adam Rowley. “We’re looking
at years of very low prices if more capacity isn’t cut.”

LME aluminum stocks exceed 2.4 million tons, a level last seen in September
1994. On top of this, the International Aluminum Institute estimates producer
stocks of unwrought aluminum to be 1.6 million tons, with around 286,000 tons
in Japanese ports. Including stocks in other exchanges, reported aluminum
stocks are now around 4.45 million tons, about six weeks’ worth of global
consumption.

This doesn’t include stocks held outside the public warehouse reporting
system, which don’t show up in official data. Macquarie estimates that as much
as a million tons of metal has built up in stocks in China. The history of
hidden stocks in China is long documented.

China too has been cutting output, but nowhere near the amount needed to make
a difference. State-owned aluminum giant Aluminum Corp. of China Ltd. (ACH), or
Chalco, the country’s biggest producer, has cut about 720,000 tons, around 18%
of its total capacity.

Smaller, privately owned Chinese companies account for a further 1.8 million
tons of cuts, according to analyst calculations, although it’s difficult to be
sure of the exact amount. But the Chinese cuts are from a very high planned
production level that keeps China at an output level that is still very high,
analysts said.

Company Cutback Additional info

Alcoa 750,000 tons 18% of co output
Vimetco 385,000 tons 44% of co output
Rio Tinto Alcan 200,000 tons Includes Tiwai Point; 5%
Rusal 293,000 tons 7% of co output
Norsk Hydro 120,000 tons Karmoey; 7% of output
60,000 tons Podgerica smelter
Impexmetal 55,000 tons Konin smelter
Vale 57,000 tons 60% cut at Valesul
TALCO 42,150 tons Tajikistan; 10% output
Century Aluminum 41,400 tons More possible Feb 15
MALCO (Vedanta) 40,000 tons Dec 10; 100% cut
Mostar 33,750 tons Bosnia smelter; 25% cut
Columbia Falls 33,000 tons 20% cut at smelter
Chalco 720,000 tons
Other China 1,780,000 tons Various smelters

TOTAL excl China 2,110,300 tons
TOTAL incl China 4,610,300 tons

-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413;
andrea.hotter@dowjones.com

(END) Dow Jones Newswires

[Charles RandallParticipant]

 
Here is DJ posted article showing World Aluminum production cuts that was in the WSJ this morning about World production cut totaling 4.5 MM mtpy Aluminum & listed the countries/companies that had made cuts (~China was about half I believe) but needed to cut another 3MM mtpy to kickstart a recovery.
 
The 4.5 MMmtpy lost Aluminum production would mean that about 1.8MM mtpy CPC petcoke wouldn’t be needed (or 2.4 MMmtpy green anode petcoke) – which is good for market & price stability since this volume petcoke would be ~ similar loss range from the refineries that are cutting back their crude & production runs due poor margins & demand. The power demand to the smelters will also be reduced.

 
I believe the DJ article Jan 12 might be the same article but do not have a subscription to WSJ online – if you will know but if not …. you still have this DJ version news item on the posted recap.  Note several of these (like Norsk Karmoey closure – were mentioned in earlier article on Recap of December Metals/Market production closures /cutbacks for Aluminum/copper/zinc & other plants.
 
Here is link to the WSJ version (I believe) for comparison:
Brinkmanship Impacts Aluminum Prices – WSJ.com  
< http://commerce.wsj.com/auth/login?mg=reno-wsj&url=http%3A%2F%2Fonline.wsj.com%2Fpage%2F2_0030.html >
Jan 19, 2009 … As a registered user of The Wall Street Journal Online, you will be able to: …. take years to recover from their slump, industry executives said. … On the face of it, the amount of world production being cut sounds sizable enough. As much as 4.5 million metric tons of aluminum is estimated to …
online.wsj.com/page/2_0030.html
 

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