Market and product

OLEG Deripaska, the Russian billionaire owner of the world’s largest aluminium firm, said this week a slump in prices might prompt producers to shut smelters, leading to a supply shortfall.

Between 2-million and 3-million tons of capacity may be halted in the second and third quarters, causing a “deficit of physical supply”, said Mr Deripaska, CEO of United Company Rusal, in Hong Kong. About 70% of the world’s smelters were unprofitable at today’s prices, he said.

Mr Deripaska and academics launched a five-year education and research joint project between Rusal and the Hong Kong University of Science and Technology yesterday.

Aluminium prices have declined 20% over the past two months in London on concern the European debt crisis and China’s curbs on its property market will derail the global recovery. Prices in China, the largest consumer , have dropped below the cost of production, Aluminium Corp of China has said .

“It’s a climate of short-sell,” Mr Deripaska said on Wednesday. “It’s the hedge funds and others just playing their games. We can see physical demand is very strong.”

Aluminium for three-month delivery in London dropped 0,1% to 1926/ton yesterday afternoon in Sydney. Prices closed at 1867,50 on Monday, the lowest level in eight months. Rusal said in April it expected aluminium to average more than 2000 a ton this year .

Euro-currency concerns, which have contributed to tumbling commodity prices, were unjustified, Mr Deripaska said. A weaker euro would help manufacturing in Germany, Italy, France and Eastern Europe, bolstering demand for aluminium .

He said the decline in the price of aluminium has been led by financial investors and that it jarred with a seven-year high for premiums on the London Metal Exchange aluminium price that clients pay for delivery .

The premiums for the metal over the exchange’s price made it more attractive to sell aluminium to consumers than to investors in exchange-traded funds, he said . The pricing situation might change within the next six months .

China, the world’s biggest producer of aluminium, said last month it would raise power-tariff surcharges for some energy-intensive companies by as much as 100%, starting this month. That would raise the costs of making aluminium in China by 100 a ton, Macquarie Securities said at the time. Electricity accounts for about a third of the expense of producing the metal.

Rusal held an initial public offering in Hong Kong in January, becoming the first Russian company to list there. It had its offering delayed at least twice by regulators and restricted to wealthy and corporate investors on concern that its borrowings were too high. Trade in the stock is limited to lots of 24000 shares.

(Source: www.businessday.co.za)