Alcoa, the largest US aluminium producer, and South32 Ltd, Australia's third-biggest miner, have been battling a surge in aluminium prices to 13-year highs. Is in the process of restarting Alumar, an idle Smelter in Brazil.
Alumar, located in northeastern Brazil, is jointly owned by Alcoa and South32 with a 60% and 40% stake, respectively, and has three electrolytic series with a capacity of 447,000 mt/y. The smelter has cut capacity across the board since 2015.
The restart will begin immediately, Alcoa said, with production expected to resume in the second quarter of 2022 and reach full capacity in the fourth quarter of 2024, when the plant will also be powered by 100 percent renewable energy. Alcoa is expected to share about $75 million in restart costs.
Alumar's proposed reboot was first mentioned in May. The price of aluminium, a key industrial metal used in everything from cars to beer cans, has almost doubled in the past 18 months to a 13-year high as demand has grown as the economy has restarted.
Aluminium companies in China, the world's largest producer, are cutting capacity in line with government guidelines to curb the reckless development of energy-intensive and high-emission projects. In early September, Yunnan Provincial Development and Reform Commission issued the Notice of Leading Group of Energy Conservation Work on Resolutely Doing well the Related Work of Double Control of Energy Consumption, explicitly requiring local aluminum output from September to December 2021 not to exceed the output of August.
"The aluminium market remains tight, with global aluminium supply in short supply due to production cuts in China, port delays and shipping issues." "We expect the resulting sustained price increases to spur additional capacity, starting with Alcoa's restart announcement yesterday," Colin Hamilton, commodities analyst at BMO Capital Markets, said in a report.
But the current surge in energy costs is making it harder to restart high-cost smelters around the world. Alumar plans to use 100% renewable energy by 2024, but hydropower generation is limited due to Brazil's prolonged drought.
While the current surge in prices has allowed aluminium producers to make a lot of money from idle capacity, the process is also energy-intensive. An aluminum factory consumes as much electricity as a large city.
"Our decision to restart is based on an analysis that shows that [Alumar] smelters are competitive through all cycles with fixed smelters, a strong workforce and competitive renewable energy arrangements," Alcoa Chief Operating Officer John Slaven said.
But Alumar accounts for only a tiny fraction of global aluminium production. Harbor Intelligence researchers forecast that global aluminum production will reach about 70 million tons in 2022, with China accounting for 57 percent of global production.
Alcoa has a total primary aluminum production capacity of 3.18 million tons/year in Australia, Brazil, Canada and other countries. As of the end of the second quarter of 2021, the company had an annual operating capacity of 2.35 million tons. If Alumar capacity comes back on track, this would mean Alcoa utilisation rates of more than 80 per cent.
