oct 19

Global aluminium smelters’ production costs on decline



Production costs for smelters are highly dependent on the global economic environment, which affects oil prices, and the prices of other commodities, including those that create smelters’ input costs. For instance, during the global economic crisis in 2009, production costs for aluminium smelters decreased between 30 and 40% compared to the record high costs in 2008. Following the economy recovery in the years after, businesses’ production costs increased but remained lower than 2008 levels. Since 2012, smelters’ production costs have been gradually falling, reaching similar levels as in 2009 by end of 2015.




Another reason for decreasing production costs of smelters is the implementation of new and cheaper technologies with lower electricity consumption and higher efficiency, either in entirely new low cost capacities or through the replacement of high cost old technologies. This trend has been especially strong in China.
Alumina, electricity and carbon (anodes) costs represent the three major cost factors of every smelter. While alumina and carbon costs are mostly similar for smelters, electricity and labour costs significantly vary from region to region.
Four years ago in the spring of 2012, when LME cash aluminium price was just below US$ 1900 / tonne, some 60% of world’s (excluding China) primary aluminium producers had production costs above the market price. Today, with the price hovering around US$ 1500 / tonne again, up to 60 % of global production (ex China) would be unprofitable without premiums. With added aluminium premiums the percentage of loss making production is 45 – 50% of the global total (ex China) of around 28 million tonnes. Chinese smelters have approximately the same percentage of profitability, if looking at the SHFE aluminium price. How could this be possible?
The answer is that production costs for smelters around the world have decreased significantly in the meantime. Additionally, premiums sharply fell during 2015, after the record high levels reached during the previous two years, which has had an vital effect on smelters’ profitability.
The main reason for falling production costs has been a significantly lower oil price (falling from nearly US$ 100 /bbl in 2012 to below US$ 40 /bbl today), lower alumina prices (~ 35 %), lower electricity costs (for smelters whose electricity tariffs are linked to the LME aluminium price.)
However, the main cost reduction came from devaluation of local currencies (as was case with the Russian ruble and Chinese Yuan), along with the strengthening of US dollar against other major currencies in recent years.

Lower production costs can also be attributed to lower prices on the electricity market, while other smelters have built their own power plants or switched suppliers to get lower prices. In general, all input costs have decreased, including costs for wages and other benefits for workers due to currency devaluation and a lower number of employees at some smelters.






The lowest and highest production cost regions
Smelters with the lowest production costs are situated in the Persian Gulf, Canada, Russia, Iceland and South Africa, and are currently in the range US$ 1100 – 1450 per produced tonne. Smelter Ma’aden in Saudi Arabia, with a capacity 740 kT /y, is the lowest cost smelter in the world (~ US$ 1050-1100 / tonne), according to Alcoa, which holds a 25% stake. This statement is based on their own low cost alumina, electricity and anode production, and among other things, high relative production. The author believes that among the lowest cost smelters in the world are those situated in Canada, before all the Kitimat smelter (owned by Rio Tinto Alcan), due to its low electricity costs.
In contrast with 2012, new Chinese smelters have also joined the group of lower cost smelters, before all in the Northwestern province, Xinjiang, which has low electricity costs (due to low coal prices) and new low cost technology (consuming less than 13,000 KWh per produced tonne of aluminium). Smelters in China have been known as occupying the very top of the cost curve. If taking into account that the aluminium price is several hundred US dollars higher on the Chinese market (Shanghai stock exchange), compared to the LME price, these Chinese low cost smelters (of around US$ 1450 / tonne) have similar profits as the lowest cost smelters in the world (US$ 1100 – 1200 /tonne). Production costs of marginal smelters were also reduced during the last four years, from nearly US$ 3000 to around US$ 2250 / tonne. The highest cost smelters are also located in China, Australia and South Eastern Europe.
Electricity costs vary widely depending on the region, with power tariffs around US$ 20/ MWh in the Middle East, US$ 35-40/MWh in the USA and Europe, and around US$ 55/ MWh in China, after the latest additional subsides on electricity prices were introduced. The Chinese government has again lowered the on-grid coal-fired power tariff by RMB0.03/kWh (US$ 4.6 /MWh), starting from January 1, 2016. According to CRU, China’s primary aluminium production based on self-generated power accounted for 62% of total production in 2015. Chinese smelters with their own power plants benefit from weak coal prices in recent years. If coal prices remain weak and the electricity market is no longer constrained, large power end-users, including aluminium smelters, would be able to sign better deals for their power supply.




Smelters using the latest technology consume as little as 12.2-12.5 MWh/t of primary aluminium produced, whereas on average global smelters consume 14.5-15 MWh/t. Many smelters have variable power costs, when rates are a fixed percentage of the LME aluminium price.
The carbon anode manufacturers are mainly exposed to global oil and coal costs. Anodes are made from petroleum coke and recycled carbon mixed with liquid pitch. A significant amount of heat is used as the anodes are baked for 18 to 20 days at over 1,000 °C. As the oil and coal prices have tumbled in recent years, so has the cost base of anode makers.
The highest labour costs in the aluminium industry are in Australia, North America, Norway and in the European Union while the lowest are in China and India. But labour costs fall with higher productivity and between 2010 and 2016, Brook Hunt (Wood Mackenzie) predicted that labour costs would fall by 17% to US$ 89/t of aluminium produced.
New aluminium smelters will naturally be set up in regions where production costs are at the lower end of the spectrum. In the near term, Russia and the Middle East will most likely see new production capacities being built up, whereas in the long term Malaysia, Angola, Paraguay and Greenland could be further candidates.
Production costs of major producers decreasing
The declining aluminium price, lower oil prices and Russian ruble devaluation all helped UC Rusal to cut costs since its energy supply contracts are linked to the LME price. UC Rusal has long term contracts to supply power from low cost hydro power plants in Siberia. At the end of 2015 UC Rusal’s production costs fell below US$ 1500 / tonne. Rio Tinto Alcan has similar production costs, thanks to low cost smelters in Canada, powered also by low cost hydro power, with the Kitimat smelter having the lowest power tariff in the world (below US$ 6 /MWh), while its other Canadian smelters pay less than US$ 7 / MWh. Norwegian Norsk Hydro claims it lowered production costs to around US$ 1400 /tonne at the beginning of 2016, down from around US$ 1600 /tonne in 2014, while Alcoa’s costs have also probably gone down to around US$ 1600 /tonne by now, following an intensive cost cutting programme and capacity reduction (closure of high cost capacities). Chalco has the highest costs, around US$ 1800 /tonne, of all major producers.
Of the world’s 50 highest-cost smelters, 37 are located in China, and the average cost of production in 2015 was US$ 1,918 a tonne, 14 % above the average cost for the rest of the world, which is US$ 1,684 a tonne, according Wood Mackenzie.
The difference between major Western producers and China is that employment, not profit, is the main factor behind the decision of companies and local governments to continue operating smelters despite making losses. Based on the SHFE price in Q1, about 50% of China’s aluminium producers were unprofitable and should the price remain at current levels for an extended period, Chinese net capacity additions should start decreasing.
Higher production costs in the future are expected only in the case of higher oil prices (to be reflected upon other commodities in terms of main input costs), but also in extreme situations of higher political tensions and natural disasters, when supplies are being interrupted.

oct 11

European Steel Workers Protest Cheap Chinese Imports

BRUSSELS — Thousands of steel workers marched through Brussels on Monday to demand the European Union maintain its protections against cheap Chinese imports, which industry executives said were destroying jobs and the environment.




Some 5,000 protesters packed the European district of the Belgian capital, where many European Union offices are, and their leaders handed an engraved metal plaque with their demands to Jean-Claude Juncker, the president of the European Commission.
The commission is scheduled to propose this year whether to grant China market-economy status, which Beijing says is its right 15 years after joining the World Trade Organization.
Critics say it would give China license to dump products at unfairly low prices in Europe. They also say up to 3.5 million jobs would be at risk. Commission officials put the maximum job loss at 211,000.
Industry executives said surging Chinese imports would undermine global efforts to reduce carbon emissions because much of China’s steel is produced using coal-fired power.
“We export in the long term our jobs and we import our CO2,” said Karl-Ulrich Köhler, chief executive of Tata Steel Europe, Britain’s largest steel maker.
Tata said last month it would cut 1,050 jobs in Britain, adding to some 4,000 steel jobs cut in October.
Mr. Köhler told an audience of industry leaders and European Union officials and ministers that it was impossible to compete with China when Beijing intervened to prop up loss-making plants.
Geert van Poelvoorde, president of the European Union’s steel association, Eurofer, and a senior executive of ArcelorMittal, told reporters that Chinese steel makers produced on average 43 percent more carbon emissions than their European counterparts.
The European Commission is reassessing limits on carbon emissions, and energy-intensive industries are wary about the prospect of stricter rules.
At the same time, China is setting up its own emissions market. Environmental campaigners say the Paris Agreement on climate change reached in December will eventually create a level playing field.
The Commission last week also opened three antidumping investigations into Chinese steel products and imposed new duties for another grade of steel.
The commissioner for industry, Elzbieta Bienkowska, said there were a record number of trade defense measures against Chinese steel in place and that policy makers would impose more if appropriate.
But she said it was up to industry “to be the master of its own destiny by adapting, innovating and modernizing.”
Anna Soubry, the British minister for industry and small business, said the fact the commission organized Monday’s high-level debate was progress toward protecting industry.
“We want there to be a greener, cleaner planet, but we also need to have jobs,” she said.

oct 07

El pasado 4 de octubre tuvieron lugar en la sede de ANFRE en Madrid la Junta Directiva y las reuniones del Comité Técnico y el Comité de Montadores

El pasado 4 de octubre tuvieron lugar en la sede de ANFRE en Madrid la Junta Directiva y las reuniones del Comité Técnico y el Comité de Montadores.

Como en ocasiones anteriores los asociados de ANFRE no nos han decepcionado y han hecho un hueco en sus apretadas agendas para poder asistir a dichas reuniones, teniendo una nutrida asistencia.  Somos conscientes de que ANFRE somos todos y que todos juntos podemos hacer grandes cosas por el sector.

En esta ocasión, hemos contado con la presencia de Marc Crespi de Exclusivas Energéticas que ha realizado una presentación de su empresa y de los ahorros que nos pueden conseguir en el consumo energético de nuestras plantas.

Concluidas las reuniones pudimos disfrutar de una muy agradable comida ofrecida por ANFRE y una compañía inmejorable.

Agradeceros a todos la confianza puesta en nosotros y vuestra asistencia a las reuniones que se organizan. Esperamos seguir contando con vosotros durante muchos años.

oct 04

EU to Start Surveying Steel Imports to Support Industry

Steel prices have dropped 40% over the past two years as Chinese imports have more than doubled.



BRUSSELS—The European Union said Friday it would start surveying steel imports as part of the bloc’s effort to support its struggling steel sector as it grapples with global overcapacity.
The European Commission, the EU’s executive arm, is establishing a mechanism for monitoring steel imports to the 28-counrty bloc aimed at obtaining better information of imports of steel to the region and deterring partners against unfair trade practices.
“This decision also gives a clear signal to companies, including in exporting countries, that the Commission actively monitors market developments and is willing to take the necessary steps if justified,” the commission said.
Under the new surveillance system, which will be applied to certain steel products, imports will be subject to prior monitoring so that authorities can get more data on import trends and address any unfair trade practices. To do this, all imports of steel products in the EU will require an import license, which will include the necessary information.
“It is an important signal that Europe is paying attention,” said Charles de Lusignan, communications manager at European steel association Eurofer.
Given recent trends in steel imports, the vulnerable situation of the European steel industry and the likelihood that excess capacity would be redirected to the EU if demand picks up, “a threat of injury to [EU] producers is therefore deemed to exist,” the commission said in its official journal.
The new surveillance system will start operating in 21 days and will be in place for four years. It will apply to imports whose net weight exceeds 2,500 kilograms, while imports from Norway, Iceland and Liechtenstein will be exempted.
The system is part of a set of plans presented by the commission last month to support the EU’s steel sector, after warnings by industries and governments that unfair trade practices by global competitors such as China could push the sector to the brink of collapse.
The plans include speeding up the adoption of tariffs on imports that are “dumped” at below-market prices and scrapping rules that limit the level of duties the EU can apply to steel imports.
Ministers from several EU governments, including France, Germany and the U.K., urged the bloc in February to step up its action amid widespread job losses in the sector.
The steel industry represents 1.3% of EU gross dome

stic product and provided around 328,000 jobs in 2015, according to the commission.
In recent months, the bloc has taken measures to protect steelmakers from unfair trade, opening several investigations into allegations of unfair trade practices by Chinese manufacturers and slapping tariffs different types of steel imports from China.
Steel imports from China, the world’s largest steel producer, to the EU have more than doubled over the past two years, while the bloc’s demand languishes below levels seen before the 2008 financial crisis. EU steel prices have dropped roughly 40% over the past two years.
The continuing crisis in the steel industry has further complicated a debate over whether the EU should formally designate China as a market economy by the end of this year, a move that will fundamentally change its relationship with its second-largest trading partner. If the EU recognizes China as a market economy, it would make it more difficult for Europe to impose tariffs on Chinese goods.
But European industries say Beijing uses government subsidies to boost exports and undercut overseas competition. They say China’s economy is still controlled by the state and governments must take that into consideration when weighing up whether or not to award it market status.

sep 26

EU governments call on Brussels to tackle China over steel



A group of governments including the UK and Germany have urged the EU to step up its fight against cheap steel from countries such as Russia and China, warning that the European industry is at “impending risk of collapse”.
‘The European Union cannot remain passive when rising job losses and steelwork closures show that there is a significant and impending risk of collapse in the European steel sector’
Ministers from seven steel-producing member states — Germany, Italy, the UK, France, Poland, Belgium and Luxembourg — have put their names to a letter urging Brussels to take greater action to tackle unfair trade practices and “ensure a global level playing field” for the steel sector.
The letter ratchets up pressure on the EU at a time of deepening crisis in the European steel industry, which has lost more than a fifth of its workforce since 2008. A plunge in international steel prices has hit steelmakers around the world and many blame a surge of underpriced exports from China.
Brussels has some tariffs in place but industry figures accuse the European Commission of responding inadequately compared with countries such as the US.
Tata Steel said it would cut more than 1,000 jobs in the UK last month, adding to thousands of redundancies and plant closures in the country over the past year.
“The European Union cannot remain passive when rising job losses and steelwork closures show that there is a significant and impending risk of collapse in the European steel sector,” stated the letter, dated Friday and addressed to three members of the European Commission and a minister from the Netherlands and seen by the Financial Times.
“The commission should make full and timely use of the full range of EU trade policy instruments,” it said.
The signatories, which include UK business secretary Sajid Javid, have called on the commission to impose measures where there is a “threat of injury”. They also called for reform of trade defence instruments to make the process quicker, more transparent and effective, and for an investigation into hot-rolled flat products from China.
“We should not wait until the damage from unfair practices becomes irreversible for our industry,” the letter said.
The intervention, initiated by France’s economy minister Emmanuel Macron, came days after the EU’s top trade official called on Beijing to cut overcapacity in its steel industry. Cecilia Malmström, trade commissioner, said she would open three new anti-dumping investigations into steel products originating from China.
Sector representatives gave a cautious welcome to the contents of the letter. Gareth Stace of the UK Steel lobby group said: “It’s what we want to see from governments. But we aren’t out of the woods yet. In fact it could get worse before it gets better.”
Roy Rickhuss, general secretary of the British steelworkers’ union Community, said: “Governments across Europe are finally waking up to the steel crisis that we are facing.”
The commission said the institution had proposed modernisation of trade defence instruments in 2013 and that the proposal was lodged with the European Council of Ministers.
“There are 35 definitive measures in place on imports of steel products, 15 of which concern China directly. We have new ongoing investigations for six steel products, three of which concern China, and are always willing to look at well-substantiated cases that European producers bring forward to us,” the commission said.
Steel imports into Europe rose 29 per cent in the third quarter of 2015 compared with a year earlier, according to Eurofer, the continent’s steel association. Import duties slapped on concrete reinforcement bars from China last week were criticised by the industry as insufficient.
The letter also argued that in order to safeguard the competitiveness of sectors such as steel, the most efficient plants should not be subject to what it called undue carbon costs.

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