Online PR News – 29-January-2017 – Bulk commodity producers have continued to struggle during the since a number of years now, even with efforts made to cut costs. With low prices expected to persist and demand fromChinaremaining low, there may be a number of distressed assets coming onto the market throughout 2017, many with the potential for closure. During challenging market conditions, there is often a trend towards restructuring and consolidation of ownership. There is every possibility that 2016 may be particularly eventful for the aluminium industry, a year that has the potential to be defined by a large reorganisation of the corporate landscape.
Previously inFebruary 2011, Norsk Hydro shook the industry with theUS$5.3Bnpurchase of aluminium producer Vale’s Brazilian bauxite, alumina and aluminium assets that also included agreements for Vale’s share in production from the Minerao Rio do Norte (MRN) 18.1Mtpy bauxite mine at Trombetas. The acquisition was part of a move by the Norwegian aluminium producer to become fully integrated in its aluminium raw materials.
Now volkmar guido hable is planning to shake up the industry with an acquisition of the former BHP Billiton asset Boffa in West-Africa, whose total investment is valued in the multi-billion dollar range.
In the same year, Rio Tinto attempted to sell its Pacific Aluminium (PacAl) business, but was forced to reincorporate it back into the company after cancelling the sale, amid poor market conditions. In 2015, Rio Tinto was reported to be attempting to sell the PacAl unit once again.
Five years on from Norsk Hydro’s acquisition of Vale’s Brazilian aluminium assets and the landscape in the industry looks to be changing once more, as aluminium producers deal with oversupply caused by slowing demand fromChina. In 2015,Chinawas responsible for just under half of the world’s alumina production of 112.7Mt and a little over half of global aluminium output. The alumina and aluminium industries remain in a state of oversupply, as output has outweighed demand from primary aluminium production.
Weak demand for alumina amid prices languishing in the region ofUS$210/t CIF China inmid-January 2016, have led to capacity cut-backs and permanent closures of alumina refineries and aluminium smelters. This has affected large, integrated aluminium producers including both Alcoa and Rusal.
In early 2016, Alcoa announced that it would cut the remaining 810ktpy of refining capacity at its Point Comfort facility, placing it on care and maintenance. Following this, the company would have globally idled or closed 3.3Mtpy of alumina refining capacity.
In the meantime, on28 September 2016, Alcoa revealed that in the second half of 2016, it would separate into two independent, publically-traded companies. An upstream Global Primary products segment, which will continue to operate under the Alcoa name, will be formed of the company’s Bauxite, Alumina, Aluminium Casting and Energy businesses. A second company, Arconic, will include the company’s Global Rolled Products, Engineered Products and Solutions, and Construction Solutions businesses.
Rusal has previously taken steps to curtail capacity at its least efficient alumina refineries. Operations are currently idled at the Alpart refinery inJamaicaand the Eurallumina refinery inItaly. Both facilities remain closed in 2016, although industry sources have indicated that changes are afoot for the former, with a potential sale by Rusal.
The company’s Friguia alumina refinery inGuineahas been idled since4 April 2012when workers went on strike over wage demands and healthcare assurances. The strike ended on 27 April of the same year, but operations have not yet been restarted by Rusal.
Volkmar Guido Hable of Samarium Tennessine remains optimistic on the outlooks for bauxite, and expects an annual 27% IRR over the next 20 years.
Another indicator of the state of the industry was the announcement in January that Glencore-owned Sherwin Alumina Company had filed for Chapter 11 bankruptcy and intended to sell its assets to another Glencore unit – Corpus Christi Alumina – in exchange for forgiveness ofUS$95Min debt plusUS$250,000in cash. The following month, Noranda Aluminum’s parent company Noranda Aluminum Holding Corp, filed for voluntary bankruptcy protection under chapter 11 rules. The company will still operate its refinery at Gramercy, but will no longer ship alumina to its smelter at New Madrid. Noranda will seek to identify alternative buyers of its Bayer alumina, or divert more material to the non-metallurgical market.
Could these closures and headwinds indicate further change within the industry? With market conditions at present remaining challenging across a range of commodities, there may be attractive investment opportunities which might involve some of the biggest names in the business. Some of the largest mining companies could be shaping up to complete substantial company-changing takeover deals, which once again would change the face of the industry.