Aluminium producers are champing at the bit to restart idled capacity after the sharp drop in raw material prices, but re-openings will be limited due to still high power costs, analysts said recently.
While the impact of such restarts might go virtually unnoticed as new, cheaper smelter capacity comes on stream elsewhere, they signalled a softer alumina market, they added. The price of alumina - a key ingredient in aluminium production and derived from mined bauxite - has more than halved since March to around $240/50 a tonne, with further declines seen likely due to looming supply surpluses, mainly on surging Chinese output.
"There's definitely talk of some smelters restarting. Alumina conditions have certainly improved, the issue is whether they can get power," said Tariq Salaria, principal consultant at CRU International.
Alumina makes up 30-40 percent of aluminium smelter costs and power -a major factor behind the earlier idling of capacity - accounts for a similar amount. While energy prices have fallen, forward prices remain high, preventing many smelters from mulling restarts, analysts said.
Wholesale power contract prices for 2007 in Germany, Europe's biggest power market, stand at around 50 euros a megawatt hour which, though below the April peak of about 60 euros, remain high historically.
Reuters' Metal Production Database (MPD) (http://mpd.session.rservices.com) estimates some 1.6 million tpy of capacity is shut in the United States and Europe. But analysts said smelters that had been idle for much more than a year were unlikely to re-open due to prohibitive costs.
A sizeable proportion of shuttered output in the United States has been out of action for several years. The planned closure at end-year of Norsk Hydro's Stade facility in Germany might also be averted.
Golden Northwest Aluminium was seen facing the greatest obstacles to restarting, while Ormet had the added incentive of averting closure of its refinery as the alumina market gets flooded. But securing power was still proving difficult.
Ormet has said it wants to resume production at Hannibal next January.
Earlier this month, top producer Alcoa Inc said it planned to restart a second potline at its Ferndale smelter, enabling it to operate at 180,000 tpy of its total 278,000 capacity after securing power.
But analysts said restarts would prove short-lived and probably only last for a couple of years while alumina prices were lower. European producers were also seen vulnerable to further closures. Analysts said capacity restarts would largely go unnoticed amid the swathe of new projects and expansions set to continue to boost cheaper cost production over the coming years in places such as China, Iceland, Russia and the Middle East.
Salaria said global smelting capacity would rise by 1.2 million tpy next year and by a further 1.0 million in 2008, on top of increases of over 2.0 million in 2005 and 2006.