Smaller Smelters Agree Over Output Cuts

Monday, July 14, 2008 22:00
Posted in category From the Factory Floor

For those of you who are using metals in your products, or are speculating in the metals market, here is some news that you should pay attention to.

Smaller smelters agree over output cuts

With 20% of steel production offline for Olympic pollution concerns, it looks like other smelters are being taken down as well – but not because they are air pollutors.

China’s main zinc and lead smelters have agreed to cut output by 10 percent during the summer to ease power shortages ahead of the Olympics and prop up prices.

so, with AL prices already going up a few points after last weeks first round of cuts (that weren’t even targeted to the AL smelters), we now have our first official closures due to energy concerns.

Why that is important – that it is official – is simply that we have been unofficially seen the impact of the power outages with factory closures and power saving measures in the city.. and that was not enough.

and it also means that we will see more to come.

To learn more about the impact of the Olympic on business, please see my previous posts on the topic, and click here to learn more about China’s energy issues

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2 Responses to “Smaller Smelters Agree Over Output Cuts”

  1. Adam Minter says:

    July 15th, 2008 at 3:31 pm

    I’ve spoken to a number of US-based aluminum scrap traders over the last couple of weeks, and they’re having a hard time making sense of the run-up in prices and, by extension, demand. Demand in the US is down at the same time that Chinese demand is curbed (by energy and the Olympics). So, by any measure, aluminum raw material prices should be down.Instead, they hit record highs last week, with reliable reports that inventories are at record highs. It doesn’t make any sense.

    Well, maybe a little. My gut (and experience) tells me that Chinese buyers are still importing as much as they can in anticipation of a post-summer, post-Olympic boom in demand and a loosening of electric restrictions (conservation measures opening things up for the smelters). They better be right, for their sake. Whatever happens, I’d bet that prices slip well before their usual pre-New Year decline.

    At this point, there’s too much uncertainty in the market to feel confident about increasing demand. Citigroup is predicting US$2/lb average for aluminum in 2009; Dahlman Rose is at US$1.40/lb. That’s quite a spread.

  2. Rich says:

    July 16th, 2008 at 1:17 am

    Hi Adam

    Over the past 4 years of buying AL in China, I have noticed that the prices are always higher on norm anyway. Our smelter puts it on the fact that so many A/C units are being products… but who knows if that is true.

    2US/lb… that is 4000USD / 28000RMB a ton. That would be 25% higher than anything we saw last year (21500 on the SME was the highest I remember) and the impact would be significant to say the least.

    1.40 isn’t too far off where we are now, and my hope is that we stay there..

    Happy travels.