Aluminum producer’s squeezed

By Leia Michele Toovey- Exclusive to Aluminum Investing News

Aluminum producer’s cutbacks have done little to stabilize the metal’s free fall. In London, the price of aluminum fell to $1,321 per tonne from $1,345. In New York, it was selling for 59 cents per pound. Six months ago, the metal’s going rate was $1.50 per pound.

Aluminum’s low price, in conjunction with the lack of equity to keep operations running is squandering producer’s stock value. Alcoa Shares fell to a 52-week low on Thursday on the New York Stock Exchange, down 97 cents, or 15.5 per cent, to $5.27. Kaiser Aluminum Corp was down 14 per cent at $16.95, and Century Aluminum Co lost 17 per cent at $1.24.

Chinalco’s investment into Rio is still generating a buzz. The state owned corporation downplayed concern it will control Rio Tinto Group through a planned $19.5 billion investment, as it lobbies Australia not to block the deal on national interest grounds. The chairman of the company, Xiong Weiping, spoke in a press conference, stating that Chinalco won’t achieve “any control in any sense.” The Chairman is in Australia, meeting with Australia’s Foreign Investment Review Board. Shareholders are “concerned” about the investment, the Australian Shareholders Association has said. Beijing-based Chinalco would raise its stake in Rio to 18 per cent if all of the debt it’s buying were converted to stock.

The investment by Chinalco, already Rio’s largest shareholder, is part of $25 billion in spending on mines and companies planned by China last month as commodity prices slumped to seven-year lows. Chinalco agreed Feb. 12 to buy stakes in Rio projects, including iron ore and copper mines in Australia and Chile, for $12.3 billion and purchase $7.2 billion of convertible bonds. The alliance between Chinalco and Rio is rare; joint ventures between a listed company and its major shareholder are not very popular. If the joint venture does go through, it will be governed by a special committee that will have representatives from both sides.

South Korea recently announced its plans to boost strategic aluminum and copper reserves by 46 and 23 per cent, respectively. “This year offers the best opportunity to achieve value for money in stockpiling. We plan to actively purchase in the first half as metal prices are likely to gradually recover later this year,” Kwon Tae-kyun, administrator said. The plan will enable the country to boost domestic reserves at low prices, preparing for increased demand in 2010 when the economy is expected to recover. The country raised its reserve target from a previous plan of 160,000 tonnes to 205,000 tonnes of aluminum. Aluminum, which domestic companies rely heavily on government purchases and rare metals, will be the focus of purchase plans.

United Company RusAl, has a two month reprieve from debt payments as it tries to renegotiate $7.4 billion of borrowings from foreign banks. RusAl said the agreement covered more than 30 transactions involving more than 70 banks, including syndicated and bilateral loan agreements, bank guarantees and letters of credit. Russian banks and the majority of foreign lenders support the standstill, RusAl said. During the payment freeze, RusAl will reorganize debts “to the benefit of all stakeholders,” it said. RusAl may convert some of that debt into shares, RusAl chairman Viktor Vekselberg said in January. RusAl amassed $14 billion of debt as it expanded smelters in Siberia, acquired a mine and a smelter in Africa and agreed to help finance nuclear and hydropower plants in Russia. Then, the price of aluminum dropped 60 per cent, leaving the company with less cash flow to pay down debt.