Mining Journal > Production and Markets > Deripaska says aluminum-plant halts to cause shortage

Production and Markets

Oleg Deripaska, the Russian billionaire owner of the world’s largest aluminum company, said a slump in prices for the metal may prompt producers to shut smelters, leading to a supply shortfall.

Between 2Mt and 3Mt of capacity may be halted in the second and third quarters, potentially causing a “deficit of physical supply,” said Deripaska, chief executive officer of United Co Rusal, in an interview in Hong Kong. About 70% of smelters around the world are unprofitable at current prices, he said.

Aluminum prices have declined 20% over the past two months in London on concern the European debt crisis and China’s measures to curb its property market will hurt demand and derail the global economic recovery. Prices in China, the largest consumer of the metal, have dropped below the cost of production, Aluminum Corp of China Ltd said on June 8.

“It’s a climate of short-sell,” Deripaska said yesterday. “It’s the hedge funds and others just playing their games. We can see physical demand is very strong.” Prices closed at US$1,867.50/t on June 7, the lowest level in eight months.

Rusal said in April it expects aluminum to average more than US$2,000/t during 2010.

Euro-currency concerns, which have contributed to tumbling commodity prices, are unjustified, Deripaska said. A weaker euro will help manufacturing in Germany, Italy, France and eastern Europe, bolstering demand for aluminum, he said.

The decline in the price of aluminum has been led by financial investors, he said. It jars with a seven-year high for premiums on the London Metal Exchange aluminum price that clients pay for delivery of the metal, Deripaska said.

The premiums for the metal over the LME price make it more attractive to sell aluminum to consumers than to investors in exchange-traded funds, he said. The pricing situation may change within the next six months, Deripaska said.

China, the world’s biggest producer of aluminum, said in May it will raise power-tariff surcharges for some energy-intensive companies by as much as 100% starting this month. That will raise the costs of making aluminum in the nation by US$100/t, Macquarie Securities Ltd said at the time. Electricity accounts for about a third of the expense of producing the metal.

June 10 (Bloomberg)