Aluminum price slide could cap smelter capacity

Aug 28, 2012 | 07:00 PM | Suzy Waite

Tags  LME aluminum price, aluminum capacity, Barclays Capital Inc., Nicholas Snowdon, John Tumazos, Very Independent Research LLC, Randy North, RBC Capital Markets David Wilson

Aluminum prices have plummeted below smelters’ breakeven point and may still have further to fall, leading market participants to speculate that producers will curtail capacity in the near future.

The continuing European debt crisis, slower-than-expected demand from China and an uncertain investment climate pushed three-month aluminum prices down to $1,841 per tonne in early August, 21.6 percent below their 2012 peak of $2,349 in late February.

Analysts estimate that production costs for smelters generally are between $2,050 and $2,100 per tonne, which means the majority of smelters worldwide are operating at a loss.

“It’s pretty clear that a significant portion of the global smelting sector is operating at a loss,” Nicholas Snowdon, an analyst with New York-based Barclays Capital Inc., told AMM. “We estimate that in the world, excluding China, you’ve got nearly 5 million tonnes of capacity that’s unprofitable based on average prices this year.” ....