Bloomberg News

Aluminum Prices to Recover as Producers Cut Output, Alba Says

January 09, 2012

Jan. 9 (Bloomberg) -- Aluminium Bahrain BSC, the second- largest producer of the metal in the Middle East, forecast that prices will recover this year as some suppliers cut output.

“Less-competitive smelters will have to reduce their production capacity or even shut down” in the first half of 2012 because of low aluminum prices, Chief Executive Officer Laurent Schmitt said in an e-mailed response to questions. That would re-balance the demand and supply of aluminum “and lead to the recovery of LME prices,” he said.

Aluminum for delivery in three months on the London Metal Exchange, the benchmark price on the world’s largest metals bourse, averaged $2,115 a metric ton in the fourth quarter. The metal traded at $1,956 on Dec. 14, a 17-month low and 30 percent less than the 2011 high of $2,803 on May 3.

Alcoa Inc., the biggest U.S. producer, on Jan. 6 said it will close or curtail 12 percent of its worldwide smelting capacity of 4.5 million tons after the price of the lightweight metal slumped amid a global surplus.

Alba doesn’t need to lower output because it has low-cost production, Schmitt said. “Europe will definitely be impacted by the economic situation, but we still foresee steady growth in MENA, Asia and some growth in Americas too.”

The average price of aluminum, which is used in beverage cans, aircraft and window frames, was 11 percent lower last quarter from a year earlier after global growth decelerated as the sovereign-debt crisis gripped Europe and China moved to curb inflation. Supply exceeds demand and inventories have soared, leaving some smelters unprofitable at current metal prices.

Increased Production

“Alba has one of the most competitive structures in the world, which enables us to operate in fair, sound economic conditions even with lower LME levels,” Schmitt said in the comments, sent yesterday. “One of Alba’s objectives is to further increase its production capacity thanks to continuous improvements of our operations’ efficiency.”

Alba increased output by 3.6 percent to an annual record of 881,310 tons in 2011, the company said in a statement on Jan. 7. It ranks behind Dubai Aluminium Co. among regional producers.

Norsk Hydro ASA, Europe’s third-largest aluminum producer, may consider cutting output because of low aluminum prices, Chief Executive Officer Svein Richard Brandtzaeg said in an interview in Oslo on Jan. 5.

“We are following developments every day, and we are ready to adapt when it is required,” Brandtzaeg said. “Hydro has taken responsible adaptations historically and we are ready to do it also this time.”

The company cut production by 26 percent in 2009 after aluminum prices tumbled 36 percent during the 2008 global financial crisis.

Energy costs at Chinese smelters are about $1,000 for each ton of aluminum produced, the highest in the world, Bloomberg Industries said in September. The cost of power represents about 30 percent of smelting expenses, Bloomberg Industries analysts said in November. Producers in the Middle East take advantage of cheaper electricity supplies derived from natural gas.

--With assistance from Agnieszka Troszkiewicz in London. Editors: John Viljoen, Tony Barrett

To contact the reporters on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net; Stephen Treloar in Oslo at streloar1@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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