Aluminum producers have been slow to make output cuts
By Leia Michele Toovey- Exclusive to Aluminum Investing News
Aluminum industry executives sent a warning to other market leaders that unless large aluminum producers make deeper output cuts, the entire industry will likely take many years to recover from the current slump. Just 10% of world aluminum output is slated to be taken offline, and unless this number is pushed higher by more output cuts long-lasting damage to the sector is possible. Most companies have shown production restraint, but more aggressive cuts in unison are necessary for stability.
Aluminum for delivery in three months on the London Metal Exchange lost 1.1 percent to $1,478 a tonne on Monday. The metal fell 36 percent last year on the LME as the global economic slump cut into demand and inventories more than doubled. Stockpiles of aluminum in warehouses approved by the LME reached 2.45 million tonnes yesterday, the highest since September 1994.
India’s National Aluminum Co (NALCO) has no intentions of any near term production cuts. The company will keep its targeted aluminum production unchanged for the year ending March 2009, citing steady domestic demand. State-run NALCO plans to produce 360,000 metric tonnes of aluminum and 1.57 million tonnes of alumina in the fiscal year to March 2009, almost the same as the previous fiscal year. Despite the global price plummet of Aluminum, the company maintains that it is still profitable; and unless there is a sharp decrease in aluminum prices, output will remain the same.
Aluminum stockpiles in Japan have climbed to their highest point in three years. Inventories in Yokohama, Nagoya and Osaka ports jumped 17 percent to 316,300 metric tonnes from 271,500 tonnes on Nov. 30. Stockpiles increased as carmakers extended production cuts and reduced raw material purchases. Japan’s vehicle sales plunged to a 28-year low in 2008; demand from construction, the biggest user in Japan, worsened because of a slump in the property market. As an example of the shrinking demand, shipments of aluminum rolled products slumped 16 percent from a year earlier to 166,454 metric tonnes in November, the biggest drop since December 2001.
Company News
Rio Tinto Group blames declining aluminum and copper prices on its low fourth-quarter earnings. Aluminum inventories will be written down as the slide in prices “negatively impacted” profitability, copper earnings fell about $360 million in the second half. Rio is selling assets to pay debt from its $38.1 billion purchase of Canada’s Alcan Inc. in 2007. Rio, which repelled a hostile bid from BHP Billiton Ltd. last year, has committed to reduce net borrowings by $10 billion this year. Rio is scheduled to report full-year figures Feb. 12. Rio Tinto announced Tuesday that it would cut aluminum output by another 6%, eliminate 1,100 jobs and take other steps to control costs amid weak demand and efforts to conserve cash. Rio Tinto Alcan, Rio’s aluminum division, plans to reduce aluminum output by 230,000 metric tonnes, in addition to production curtailments announced in the fourth quarter. This brings the total production decrease to 450,000 tons, or about 11% of its total annual aluminum capacity.
The presidents of Furukawa Electric Co., Japan’s largest rolled-aluminum manufacturer, and Showa Denko are in merger talks. The company presidents are aiming to reach an agreement later this year and complete the integration of their businesses around the start of 2010. The merged company would have a domestic market share of more than 20 percent.
A vice president of Aluminum Corp of China squashed rumours of an asset purchase in Rio Tinto, by publicly stating that Chinalco, Rio’s largest shareholder, is not interested. The company believes that the assets being sold by Rio Tinto are unrelated to Chinalco’s main businesses, the executive, Lu Youqing, said in an interview. Rio Tinto is selling its borates and talc units in a deal analysts expect to fetch more than $1 billion.
Alcoa Inc.’s wider-than-expected loss could be the start of a series of loss-making quarters as the aluminum giant faces the potentially daunting task of cutting costs further to conserve cash. Alcoa is facing declining demand from the automotive and construction industries as well as low selling prices for aluminum. There are concerns the company may have to scale back its dividend, paid at an annual rate of 68 cents a share, or resort to further production cuts. Investors have been betting big against Alcoa: The short interest in Alcoa shares is at its highest level since 1998 and five times its average level over that 10-year time period as short sellers are betting on the company’s stock to decline.
