Weak demand is spurring aluminum restructuring
With aluminum prices declining, firms cut workers, output
By Tom Stundza -- Purchasing, 1/21/2009 1:53:00 PM
The downturn in aluminum prices is forcing many smelting companies to re-assess their money-losing operations and announce major production cutbacks like the ones announced recently by Alcoa of Pittsburgh and Rio Tinto Alcan of Montreal. In fact, Jacynthe Côté, the incoming CEO of Rio Tinto Alcan, is warning that many more aluminum industry production and job cuts are coming as demand remains extremely weak and uncertain.
Since cutbacks began last August, some analysts' tallies show about 5.8 million metric tons of annual capacity has been curtailed globally. Alcoa announced earlier that the shutdowns of potlines in British Columbia and Washington State brought its staff reductions to about 13,500 and North American output curtailments by 18%. Rio Tinto Alcan is reducing operations also--cutting global output by 11%, or 450,000 metric tons of annual capacity. The firm is curtailing production at its Vaudreuil alumina refinery in Canada by 400,000 metric tons. And, the firm plans to sell its 50% stake in the Alcan Ningxia joint venture in China.
In an interview this week with The Financial Post of Canada, Côté posits that more than two-thirds of aluminum operations worldwide are losing money at the current world ingot price of about 64¢/lb. “Until the demand picks up, we have to expect more production curtailments,” she says. The problem is that none of the capacity cuts so far have provided much of a catalyst for the market, as London Metals Exchange inventories have soared to a 10-year high and prices have continued to fall. "Relative to the world's current production costs, the aluminum price has probably never been lower, post-Second World War," analyst Tony Robson at BMO Capital Markets in Toronto tells The Financial Post.
Aluminum ingot and mill products demand in the U.S. and Canada totaled an estimated 21.15 billion pounds through eleven months of 2008. That’s 7.6% below a year ago, according to the Aluminum Association. Calculating just aluminum mill products, purchasing was 12.6 billion lb, or 9.2% off the 2007 buy. In fact, annualized 2008 purchases are 15.5% off the industry’s shipments to buyers in 2007.
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