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.”

Most analysts expect prices to continue falling to the $1,800- to $1,850-per-tonne range.

“The price will drop until companies cut output,” said John Tumazos, an analyst at Holmdel, N.J.-based Very Independent Research LLC, who said he expects “large output cuts” in the coming weeks.

Earlier this year, four producers made smelting cutback announcements: Pittsburgh-based Alcoa Inc. said it planned to curtail some 531,000 tonnes of global smelting capacity; Moscow-based United Co. Rusal said it was mulling a cut of up to 600,000 tonnes; Montreal-based Rio Tinto Alcan disclosed it would divest 13 aluminum and alumina assets; and Oslo-based Norsk Hydro ASA said it would pull the plug on its 180,000-tonne-per-year Kurri Kurri smelter in Australia.

However, producers have followed through on only a few of their curtailment threats so far. Hydro idled the first potline at its Kurri Kurri smelter in February and is now working on shutting the remaining two by September; Rio Tinto Alcan shut its 182,000-tonne-per-year smelter in Lynemouth, England, in March; and Alcoa began closing two of its Spanish smelters, its 87,000-tonne-per-year La Coruña facility and its 93,000-tonne-per-year Avilés operation.

Producers’ hesitation to cut production is understandable—shutting and restarting a smelter is expensive, and there are headaches that go along with cutting power contracts short, market participants say.

Record-high Midwest premiums of 10.25 to 11 cents per pound also have encouraged some producers to delay curtailments.

“We haven’t seen any extreme cuts yet,” said David Wilson, director of metals research and strategy at New York-based Citigroup Inc.’s investment research and analysis division. “This is partially because physical premiums are high, which is providing some degree of cushion.”

Snowdon agreed that the record-high physical premiums have given a boost to smelter margins. “We estimate that about 50 percent of physical premiums are ultimately received by the smelters,” he said. “That’s about a $100-per-tonne boost to profitability.”

Still, as the price of aluminum slides daily, analysts say producers can’t wait much longer to cut capacity. “We’re close to the bottom as we’re getting to the pain threshold,” Wilson said.

Randy North, director at Toronto-based RBC Capital Markets, agreed. “There is a point at which you have to wave the white flag,” he said. “I think we’re close.”

Rusal confirmed that, pending board approval in September, it will begin curtailing between 250,000 and 300,000 tonnes of smelting capacity in the autumn, targeting high-cost facilities in western Russia and the Urals, and expects to complete curtailments by the middle of 2013 (AMM, June 26). The future of Alcoa’s 150,000-tonne-per-year smelter in Portovesme, Italy, remains unclear. Alcoa initially planned to permanently shutter the operation by mid-year, but after bumping heads with the Italian government it decided to keep it open as it sought potential buyers. However, Alcoa will start curtailing capacity at Portovesme if no letter of intent has been signed by Sept. 1. Alcoa’s 190,000-tonne-per-year smelter in Point Henry, Australia, is under review.