CHICAGO Century Aluminum Co. has been hit by a global drop in commodity pricesperhaps driven by speculationat the same time that aluminum capacity continues to increase, according to president and chief executive officer Michael Bless.
Cash prices for aluminum on the London Metal Exchange averaged around $2,000 per tonne in the first quarter, roughly on par with the fourth quarter of 2012, Bless said during a conference call with analysts. But March saw a "rapid" decline in LME prices to a range of $1,850 to $1,900 per tonne.
"Weve obviously seen a significant sell-off in prices of all commodities," he said. "The price action has appeared seemingly indiscriminate, with no evidence of most of the normal relationships and correlations to which we are all accustomed."
LME stocks were "relatively flat" during the quarter, and U.S. Midwest premiums continued to hold at historically high levels just shy of 11.5 cent per pound, Bless said. European premiums may have softened, but those in Japan remain "very strong."
Given such contradictory indicators, the Monterey, Calif.-based aluminum producer has found the overall market tough to read, Bless said. While some market segments in the United States have been "off a little bit from a growth perspective," most remain "pretty good."
Despite significant local variations, markets globally are generally either balanced or experiencing only a "modest surplus," while fundamental data is "stable if not robust," Bless said. "Therefore, we believe that speculative activity and other forces are at work in driving the prices of ... commodities, in addition to legitimate concerns about global fundamentals."
Bless conceded that about 45 percent of global aluminum production capacity is currently operating at a cash loss, but he pointed out that much of that loss-making capacity is in China.
Production cuts have been made in higher-cost regions of China, as well as in Europe, Bless said. In addition, Moscow-based United Co. Rusal has announced plans to curtail 300,000 tonnes of production (amm.com, March 4).
But those moves wont be enough to counteract new capacity being added in western China, where power is less expensive, and in the Persian Gulf, he said.