Tag Archives: Aluminium

Aluminium Industry Expects Structural Change

The aluminium industry is expecting a neutral to mildly positive change in the next three to five years. The industry will witness a significant change in the structure and this change will be the result of depressed prices and cost pressures in this field.

Based on Fitch Ratings, some aluminium producers are expected to sink, while and some new companies might emerge, especially in Middle East.

The key reasons behind these radical changes are the depressed aluminium prices, rising electricity input costs and changes in the pricing mechanism for alumina. Aluminium smelting is an energy demanding activity and producers require site smelters in low energy cost regions, such as the Middle East or in places like Iceland and Siberian
Russia (also called energy islands).

Due to the high cost of energy and low smelting returns, producers are being forced to close down their smelters. The announcement of Rio Tinto in October 2011 that it would close or sell 13 aluminium and alumina assets, is just one example.

The second factor is the push for a higher proportion of alumina to be sold on a spot/index basis, rather than on contracts. Alumina has been priced as a fairly narrow percentage (generally in the range of 11.5%-13.5%) of the more liquid and transparent aluminium prices.

It is an argument that the contract system did not reflect the true value of alumina but rather that of the end product. If alumina will price as a product in its own right, it is likely to result in more volatile, but structurally higher future prices and margins.

All these details point to the closing and shedding of Western producers and an increase in Middle Eastern producers who have a strong position in terms of energy cost. These new manufacturers may face operational risk from their lack of integration into feedstock but at the same time these new companies will add operational diversity to the industry.