Home > Market change > Rusal’s Deripaska forecasts smelter closures

Rusal’s Deripaska forecasts smelter closures

June 10, 2010

“Aluminium producers will shut down as much as 3m tonnes of capacity by the end of the third quarter if metal prices remain at current levels, according to Oleg Deripaska, chief executive of the world’s biggest aluminium producer.

Aluminium prices had tumbled to about $1,900 a tonne, and most producers were unable to cover the costs of powering smelters and distributing the metal, Mr Deripaska told the Financial Times.

‘If [the aluminium price] will be at this level at the end of the second and third quarters, we will see 2m to 3m tonnes shut down, all around the world,’ he said. That would represent about 8 per cent of global production, which stood at 37m tonnes in 2009, according to analyst estimates.”

Source: Financial Times, June 10 2010

Observations:

Cash Buyer Primary Aluminium price (www.lme.com)

  • Aluminium price peaked mid 2008 above $3,000 a tonne. After a dip early 2009 the price is fluctuating around $2,000 a tonne, with break-even price for many producers around $2,100-2,200.
  • Last month Vale sold its Aluminium assets to Norsk Hydro arguing the rising cost of electricity made the business too risky.

Implications:

  • Energy costs will play an increasingly important role in the smelting business. Production costs are increasing so much due to energy price increases, that some smelters will go out of business permanently.
  • When companies can choose where to process, the balance between transportation costs and energy costs is shifting slightly, making transportation of ore over greater distances feasible. However, as both smelting costs and transportation costs are mainly driven by fossil fuel prices, the change will not be disturbing.
  • Smelting in countries where energy prices are not so dependent on fossil fuel prices is becoming increasingly attractive.

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