Aluminum prices fell to a new low in 2011 and fell further to the bottom of the global production cost curve.
The London Metal Exchange (LME) three-month aluminum CMAL3 is currently less than $2,100 per ton, and the supplier will certainly respond, the question is only when and where.
The decision announced by Rio Tinto last week clearly highlights this. Rio Tinto announced that it will permanently close the 177,000 tons of Lynemouth aluminum smelter in the UK. However, the news of closing the Lynemouth aluminum plant has been warning for a while, and It seems to be more like a strategic restructuring of Rio Tinto's aluminum smelting business, rather than a direct response to the recent collapse in aluminum prices.
Rio Tinto is also preparing to sell aluminum and aluminum plants in Australia and New Zealand, and began to review the Sebree plant in the United States. Rio Tinto's operating costs are higher than the core aluminum production base in Canada, and Rio Tinto describes itself as an aluminum business. Performing lean and slim, but it seems that the goal is a longer-term cost arrangement.
China's rapid response
If the historical experience in recent years is enough as a reference, then the region with the largest and fastest aluminum production reduction will not be Europe and the United States, but China. In China's huge aluminum smelting industry, the cost of many operators is still relatively high, and the best in the economy. At the time, the profit is still very meager.
At the end of 2008 and early 2009, when aluminum prices fell sharply, Chinese aluminum smelters were the fastest responding group. At that time, LME three-month aluminum collapsed to less than $1,300 per ton. From September 2008 to 2009 1 During the month, the reduction in China's national aluminum production capacity was equivalent to a reduction of 3.5 million tons per year.
Although European and American producers also responded with restraint in production capacity, their response rate was relatively slow. The response from the entire supply surface did not reach its peak until the first half of 2009.
At that time, Chinese aluminum smelters had restarted their production capacity, fully demonstrating that China is the fastest-growing producer.
China's output is greatly reduced
Now that prices have once again fallen to the painful areas of producers, will the same pattern repeat itself? Of course, judging from the fact that China’s aluminum production was greatly reduced last month, it seems to be the case.
The China Nonferrous Metals Industry Association (CNIA) data "shows" that China's aluminum production in October fell sharply. The average daily output in October fell from 52,700 tons in the previous month to 48,100 tons. The annualized rate was reduced by 1.68 million tons. The question is whether this "real" reflects China's domestic situation, or just a statistical anomaly.
Earlier this month, another batch of data released by the National Bureau of Statistics of China showed that the annual rate of decline was even larger, reaching 1.88 million tons. Many Chinese aluminum observers also looked at it. This reduction has never been seen before, even if Compared with the downturn in the end of 2008, it is not inferior.
Those familiar with China's statistics believe that China's 11-day holiday may cause data distortion. Since the holiday will delay data reporting, this factor will cause temporary abnormalities in China's monthly statistics from time to time.
The data of the Nonferrous Metals Industry Association can only partially resolve these doubts. The general trend is still the same, downward, and is significantly down. However, the association's October annual output is equivalent to 17.6 million tons, which is better than the National Bureau of Statistics. It is 900,000 tons higher.
Until September, there has been a steady gap between the two sets of data. It is doubtful which one is more accurate and how reliable they are. This problem can only be solved by the data of the next few months. Even if it is assumed that Chinese producers are now responding to falling prices, if this is only the self-adjusting balance of China's domestic market, the practical significance of these discussions is limited.
[NT:PAGE]China's net import of primary aluminum in October is still small, but the net export volume of aluminum products is very high. If China's production cuts strongly affect the market outside China, other factors will need to be changed.
Increase in production outside China
Aluminum production outside China is still increasing in October. According to the International Aluminum Association (IAI), October's annual production rate reached 25.88 million tons, a record high. This reflects the Bay Area (Bay) Regional expansion of production capacity, resulting in sustained and rapid growth of local production. Annual production growth in the Bowan area is still higher than 20%. In other regions, most of the output in October has not changed. It is worth noting that aluminum production in Western Europe and North America is still far away. Below the level before the 2008 financial turmoil.
The most costly equipment during 2008-2009 was frozen, and many have not yet been restarted. For example, Rio Tinto's Lynemouth aluminide plant has not yet returned to capacity until it is closed. Norway Norsk Hydro (NHY.OL: The market has just announced that it will suspend the full restart of Sunndal's aluminum smelter. In other words, the pain of "easy" has been swallowed. The next round of production cuts will be more difficult.
Defensive operation?
This is important because aluminum has become a popular defensive operation in the wake of the new financial crisis and the collapse of metal prices. It is based on these production costs. The premise of this operation is that aluminum prices are currently under The file space is limited, because if it falls further, it will inevitably trigger the supply side to respond.
On the surface, there is nothing wrong with this assumption. Every manufacturer will carefully evaluate and calculate their own business to understand what parts can be cut if necessary. The most difficult question is when and where.
If Chinese producers now react to prices, the effect of supporting prices will only be in China, and China’s imports and exports will also react. If the market waits for producers outside of China to respond, it will have to wait for a longer period of time. Because the most costly capacity has been shut down, and the key cost factor of electrolytic aluminum, the power contract rarely reflects the current price, so it provides a buffer for short-term fluctuations in metal prices.
Only if the aluminum price stays low for a long time, or begins to fall further, the producer will reduce production. Aluminum can indeed be used as a defensive operation. But not necessarily now.
Concerned about surprises
Tag: Aluminum Price Sunndal Manufacturer London Metal Exchange Capacity
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