Business & Investment

Alcoa powers up in Brazil as China’s aluminum powers down: Andy Home

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London — After being idle for six years, Brazil’s Alumar Aluminum Smelter is about to resume operations.

Alcoa, which owns a 60% stake in the joint venture, said on Monday that it will resume its 268,000 tonnes annual share of the first metal due in the second quarter and will be fully operational in the fourth quarter of next year. rice field.

The revival of the San Luis Smelter is a sign of a changing era in the global aluminum market.

In 2015, aluminum fell into a multi-year downtrend, with the London Metal Exchange (LME)’s three-month price dropping to a six-year low of $ 1432.50 per ton in November of that year.

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China’s major metal production growth was accelerating, up 11% from 7% growth in 2014 due to investment in smelting capacity. Exports of semi-finished products are growing rapidly, rising 14% in 2015, consuming demand everywhere else.

Fast-forwarding in 2021, the LME priced at around $ 2,950 per ton, reaching $ 3,000 last week for the first time since 2008.

China’s seemingly infinite production growth is stagnant, showing signs of a reversal as energy limits become more stringent. Demand remains strong and tensions in China’s domestic supply chain are revealed each month in the form of a continuous flow of primary metal imports.

Power crunch

China’s aluminum production slowed further in August, according to the latest estimates by the International Aluminum Institute (IAI).

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The country’s annual utilization fell to 38.8 million tonnes in August, the lowest level since December last year.

Cumulative production growth in the first eight months of 2021 was 7.3%, flattered by last year’s pandemic slump and short-term growth in January and February.

IAI counts do not exactly match official numbers. This is due to the issue of counting output across 80 production entities, both of which capture the same stagnant momentum.

The country’s electricity-intensive smelters are suffering from both temporary power shortages and structural energy restrictions associated with Beijing’s decarbonization goals.

As a result, the smelter’s production capacity has been reduced by approximately 2.33 million tonnes annually, according to state-sponsored research firm Antaike.

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Reductions are mandatory in states that are struggling to meet their quarterly energy efficiency targets, such as Inner Mongolia, Guangxi and Henan. Yunnan is also fighting the low water levels of hydropower systems.

Much of the savings will continue through the end of the year, along with key producers such as Henan Shenhuo Coal & Power Co Ltd and Yunnan Aluminum Downgrade Production Guidance.

Yunnan Aluminum planned to bring 380,000 tonnes of capacity online annually, but it will be postponed until the power limit ends.

This highlights the impact of electricity constraints on operational capacity and new capacity expected to boost China’s production this year.

According to Citi, China was to activate a new annual production capacity of 1.8 million tonnes in 2021. (Aluminum-Transition from Periodic Bull Market to Structural Bull Market, September 7, 2021)

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However, 1.2 million tonnes, or 625,000 tonnes, will be “probably postponed for about 6-12 months in 2022, mainly due to power shortages and energy management-led administrative closures by the state government.”

power ups?

China is the dominant aluminum producer in the world, so it’s not hard to understand why prices have risen to their highest levels in years.

Analysts are quickly reassessing both supply and demand calculations and price forecasts. For example, Citi forecasts a supply shortage of 1.1 million tonnes this year in the global market, raising the average LME price forecast for 2022 to $ 3,010 per tonnes.

The sense of structural change explains that Alcoa has resumed its idle Brazilian capacity and Russian producer Rusal has resumed its long-delayed Tayshet smelter project.

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However, Western production does not address China’s aluminum problems and high prices.

According to IAI, reported production outside China was also the lowest this year at 26.2 million tonnes per year.

North American production fell due to a July strike at Rio Tinto’s Kitimat smelter. The smelter operates at 35% of its annual production capacity of 432,000 tonnes.

European production is also declining, suggesting that smelter margins caused by soaring electricity prices are shrinking.

The only important production growth drivers outside of China are India, Malaysia and the Gulf countries.

Theoretically, there is still plenty of idle capacity that can be resumed in the coming months. Alcoa keeps 20% of its global capacity offline even after restarting Alumar.

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However, every time there is a possibility of a reboot, you need to navigate the local electricity market in terms of both availability and price.

It is worth noting that Alumar is reopening despite the apparent stress of the drought on Brazil’s hydropower system.

The country raised energy prices and Vice President Hamilton Mourao warned that a ration system might need to be introduced.

Against this backdrop, Alcoa has succeeded in ensuring what Executive Vice President and Chief Operating Officer John Slave has called a “competitive renewable energy arrangement.”

It remains to be seen if many other operators can perform the same tricks in the ever-expanding global power sector.

For now, the focus is on China’s stress grid and sliding production, which continues to be the world’s largest producer of aluminum.

(Edited by Barbara Lewis)

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    Alcoa powers up in Brazil as China’s aluminum powers down: Andy Home

    https://financialpost.com/pmn/business-pmn/alcoa-powers-up-in-brazil-as-china-aluminum-powers-down-andy-home-2 Alcoa powers up in Brazil as China’s aluminum powers down: Andy Home

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