Viewpoint: US aluminium cuts to be less severe

OREANDA-NEWS. December 29, 2015. US aluminium producers have eased plans to cut primary aluminium smelting capacity, helping to slightly soften the blow to US anode-grade petroleum coke markets.

The cuts still shrink the US aluminium industry's demand for coke by nearly one-third from 2014 levels.

Early fourth quarter plans by US aluminium producers Alcoa and Century Aluminum to slash domestic smelting capacity would have cut the US industry's demand for petroleum coke by about 37pc compared with 2014. But recent announcements to keep some of that capacity operating have lowered that figure to about 32pc.

Pittsburgh-based Alcoa on 24 November scrapped plans to idle its 130,000t/yr Massena West smelter in New York. And Chicago-based Century on 17 December retracted its plans to cut one-third of the capacity at its 205,000t/yr Sebree plant in Kentucky. It instead will resume full operations there. But Century on 18 December said it will reduce capacity by 50pc at its 224,000t/yr Mt. Holly smelter in South Carolina.

Alcoa had said on 2 November that it would cut 503,000t of its US primary aluminium capacity by the first quarter of next year. Combined with Century's earlier announced cuts, the companies planned to remove about 632,000t of US aluminium output from the domestic market next year.

The latest revisions will keep 86,000t/yr of aluminium in the market, reducing the planned cuts to about 546,000t/yr. Those cuts will reduce the US industry's demand for calcined petroleum coke by about 218,000t/yr and green coke by about 290,500t/yr.

Global aluminium producers have been hurt by falling metal prices and premiums, but US producers have also struggled against high energy costs and a strong US dollar that benefits their global competitors. A recent rise in metal prices from six-year lows may help support decisions to keep capacity operational.

The US midwest transaction price, which includes the London Metal Exchange price and premium that buyers pay to take delivery of the metal, has risen steadily this month to \\$1,736/t on 24 December, up from \\$1,599/t on 28 October, which was its lowest point since May 2009.

Global metal prices have been supported by a decision by Chinese producers to curtail output. The China Nonferrous Metal Industry Association (CNIA) said this month that Chinese smelters plan to have shuttered nearly 5mn t by the end of this year. China's 11 largest aluminium smelters, including Chinalco and Shandong Weiqiao, have promised they will not restart closed capacity next year, according to CNIA. But market analysts are skeptical that promise will hold true and note that new capacity may already be offsetting production cuts.

"The problem is that we are not seeing any of these reductions surface in the overall output data," Edward Meir of INTL FCStone said. "Presumably, newer facilities are filling the production void and taking over market share from smelters that are closing."

US producers have blamed Chinese overcapacity and heavily subsidized aluminium imports as the reason for their announced capacity cuts. At recent prices, US smelters are quick to mention they require lower energy prices to not only compete but to continue producing.

Century had earlier this year warned that it might have to close its 224,000t/yr Mt. Holly smelter if it could not reach a power deal with utility Santee Cooper. But as part of a recent agreement with the utility to prevent a shutdown, Mt. Holly will operate at 50pc capacity by the end of 2015.

Alcoa decided to keep its 130,000t/yr Massena West smelter on line after receiving \\$38mn in business incentives from New York state to keep the plant operational. The agreement includes capital expense support and electricity discounts.

And Century said this month it will continue to operate its 205,000t/yr Sebree, Kentucky, smelter at full capacity, citing competitive electricity prices in the state. The company had said in October that it planned to reduce the smelter's capacity by one-third.