Smelters to halt amid aluminium price meltdown

PUBLISHED : Tuesday, 14 February, 2012, 12:00am
UPDATED : Tuesday, 14 February, 2012, 12:00am

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Aluminium giant Rusal expects global smelters of the metal to make idle plant capacity equivalent to around 8 per cent of total output this year, as low aluminium prices render high-cost smelters loss-making.

The Moscow-based, Hong Kong-listed company estimates that mainland producers will cut 1.2 million tonnes of annual capacity, while those outside China might shed 2.7 million tonnes, it said in a statement.

'This should support LME [London Metals Exchange] prices,' it said, adding that several global smelters had announced production cuts totalling 1 million tonnes for this year.

Rusal posted a 1 per cent rise in aluminium output for last year. Output of intermediate product alumina climbed 4 per cent and that of raw material bauxite jumped 14 per cent.

LME aluminium prices fell around 18 per cent last year as Europe's sovereign debt crisis led to a global economic slowdown.

Aluminium is widely used in the packaging and transport industries, much of it in beverage containers, vehicles and aircraft.

Rusal estimates that 31 per cent of China's aluminium smelting capacity is unprofitable.

According to a Deutsche Bank research report, the global average production cost of aluminium is US$2,100 a tonne.

The three-month LME aluminium futures price has rebounded 14.4 per cent to around US$2,244 a tonne from a low of US$1,962 in mid-December, after falling from a high of US$2,797 in May.

With two rounds of power price increases on the mainland last year and the continuing appreciation of the yuan against the US dollar, production costs are tipped to rise further this year. Electricity accounts for around 40 per cent of smelting costs on the mainland. This implies that more outdated production lines will be made idle. But, Deutsche Bank estimates the country's production to rise 17 per cent to 22.3 million tonnes this year as it expects closed capacity to be more than offset by new and lower-cost ones, many of them in western China.

Deutsche Bank forecast global aluminium output to rise 9 per cent to 49.3 million tonnes this year, with industry capacity utilisation rising to 88 per cent from 86 per cent last year. Consumption is tipped to rise 8 per cent, compared to 10 per cent last year and 16 per cent in 2010.

$2,138

The amount in US dollars that Deutsche Bank forecasts the LME aluminium spot price will average this year