We obtained lots of dazzling honors since the opening of the company, and we take these honors as a starting point towards a higher goal. We will forge ahead; make persistent efforts to achieve more results.
Further production cuts are likely at Europe's aluminum smelters as the industry struggles with high operating costs and low metal prices, Citi's director of metals research and strategy said Thursday.
Around 28% of the European Union's aluminum smelters are losing money at current aluminum prices, David Wilson told CRU's World Aluminum Conference in London.
"Smelters operating in the European Union have, on average, a 30-40% energy cost disadvantage to smelters operating in other areas," Mr. Wilson said. "At the same time, rigid labor markets create significant disadvantages for operating in Europe."
Aluminum prices are also low, weighed by an overhang of metal held in exchange-registered warehouses as part of so-called financing deals, Mr. Wilson added.
Financing deals in aluminum took off during the economic downturn when metal prices slumped, as demand in key consuming sectors fell. Producers sold or pledged metal to traders and banks to raise much-needed working capital, and the metal was locked up in warehouses as a result.
Benchmark aluminum prices on the London Metal Exchange Thursday traded at $1,840 a metric ton, down 11.3% on the start of the year.
"To me, this all suggests that we will continue to see contractions in European aluminum production," said Mr. Wilson. "There appears to be little future in operating aluminum smelters in Spain and Germany, where smelters struggle to break even."
Elevated premiums paid by consumers for the physical delivery of metal--another symptom of aluminum financing deals, which affect the availability of metal to the market--also present a doubled-edged sword to aluminum producers, said Mr. Wilson. While these high premiums have helped shield producers from low LME aluminum prices, the reliance on inflated delivery fees puts producers at risk, should financing deals begin to be unwound and aluminum become more readily available to the market, he said.
"The reliance on premiums makes the industry very vulnerable," said Mr. Wilson.
According to Mr. Wilson, European premiums for the physical delivery of aluminum are currently between $280/ton-$290/ton, compared to more "normal" premiums of between $40/ton and $50/ton before financing deals took off.
