Analysis: Aluminium losing battle against oversupply
By Eric Onstad
LONDON (Reuters) - Excess capacity in aluminium smelting will drag on for years to come, even while losses weigh on producers, as political pressures in China and Russia to keep jobs and push self-sufficiency prevent or delay plant closures.
Rio Chief Executive Tom Albanese warned margins may continue to be squeezed in the medium term. "The current environment in the aluminium industry is tough ... I can't predict when the price will recover."
In China, which accounts for 40 percent of global output, local authorities are wary of closing smelters that lose money but provide jobs, while the central government continues to drive an overall capacity expansion to maintain self-sufficiency.
Election politics in Russia also have halted at least one planned shutdown.
Throughout the sector, furthermore, smelters that consider closures are often hampered by long-term contracts to buy power and raw materials.
Companies are losing money on 30 to 40 percent of global output, analysts estimate. Margins have been hammered by five years of surpluses and rising input costs, particularly for power.
Benchmark aluminium prices on the London Metal Exchange have crumbled by a third since hitting a peak in July 2008 of $3,380 per tonne. Continued...