Two aluminum companies recently announced a renewed focus on their smelter operations on the back of Chinese supply cuts.
Supply cuts in China have boosted aluminum prices from $1,500 a tonne in January 2016 to over $1,900 today. Since January, aluminum prices have gained 12 percent, and prices rose 3 percent on Thursday (July 13) on talk that more capacity cuts are on the way.
On the back of higher prices, some aluminum companies have announced a renewed focus on their smelter operations. Earlier this week, US aluminum firm Alcoa (NYSE:AA) announced a partial restart of its Warrick aluminum smelter in Indiana.
The firm said it, “appreciates the actions the Trump administration has taken to address the challenges faced by the US aluminum industry, including Chinese overcapacity.” The process of the partial restart, which will boost annual capacity by 161,400 MT, will begin immediately and is expected to be completed in the second quarter of 2018.
This past spring, US President Donald Trump ordered the US Department of Commerce to investigate whether aluminum and steel imports pose a threat to national security. The results of the investigation, which could result in tariffs of up to 20 percent on imports, are reportedly forthcoming.
Alcoa is not the only aluminum firm planning to ramp up smelter output. The world’s second-largest aluminum producer behind China Hongqiao Group (HKEX:1378) is Russia’s Rusal (EPA:RUSAL), and it recently said it is resuming construction on its Taishet aluminum smelter project in Siberia.
Rusal said it decided to restart construction because it expects a widening global aluminum deficit. The firm’s deputy chief executive, Oleg Mukhamedshin, told reporters in Moscow that he expects the global aluminium deficit to be as high as 1.8 million tonnes in 2018, up from 1.3 million tonnes in 2017. The company sees lower output from China driving the deficit.
The firm is in process of securing bank financing, and hopes to have it in place by the end of the year. The smelter is expected to be completed by 2020, and will have a annual capacity of 430,000 tonnes. Rusal also plans to expand annual capacity at its Boguchansk smelter in Siberia from 149,000 tonnes to 298,000 tonnes by 2018.
All that said, there are some concerns that China may not reduce its production by much in the long term. In China’s Hubei province, the reduction in steelmaking capacity at nine mills of over 11 million tonnes was done to accommodate the expansion of a plant by Shougang Jintang Iron and Steel, Reuters reports. When the plant expansion is complete it will produce 9 million tonnes of steel products annually.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.