Aluminium

[greggles]

I notice the aluminium price is at five years highs, currently US$1.08/lb. Can anyone suggest which ASX-listed companies are most likely to benefit from this?

 

[Ann]

High Purity Alumina stocks on the ASX: The Ultimate Guide
"As with lithium and other battery minerals, new markets are rapidly opening up for materials such as high purity alumina (HPA), propelled by the influx of high-tech industries emerging on the world stage."

Also there are a few stocks listed under 'Aluminum' in the AFR are as follows:
ATC, AWC, ABX, BAU, CAA, MMI, PBX.

Here is an incomplete 15 year quarterly chart for High Grade Aluminum currently the price is sitting just below a support line of around 1900, it will be interesting to see where the price sits at the end of March. I shall revisit the chart at the end of March.

 

[sptrawler]

The problem with aluminium is it is energy intensive, and the cost of energy is increasing, so is the demand for aluminium as vehicle manufacturers try to reduce weight.
So IMO the price of alumina stocks will keep rising, I picked up AWC and S32 recently.

 

[Smurf1976]

The problem with aluminium is it is energy intensive

That's an understatement.....

The electricity needed to produce just one tonne of aluminium would run the average Australian house for about 3 years.

 

[sptrawler]

That's an understatement.....

The electricity needed to produce just one tonne of aluminium would run the average Australian house for about 3 years.

Yes smurph, but the cost of production, will cause more smelters to close, this in turn will constrict supply.
Whereas the demand will rise, as the auto industry will have to make cars lighter, especially as we move toward EV's they will have to be lighter to conserve battery energy.
So the demand for aluminium goes up, the supply falls off, can only lead to one outcome. IMO
Eventually when autonomous cars are mainstream, plastic will be the main component it E.V's, as structural strength and safety won't be an issue. Then I guess aluminium demand will fall away, as I said, just my thoughts.

 

[Ann]

Yes smurph, but the cost of production, will cause more smelters to close, this in turn will constrict supply.
Whereas the demand will rise, as the auto industry will have to make cars lighter, especially as we move toward EV's they will have to be lighter to conserve battery energy.
So the demand for aluminium goes up, the supply falls off, can only lead to one outcome. IMO
Eventually when autonomous cars are mainstream, plastic will be the main component it E.V's, as structural strength and safety won't be an issue. Then I guess aluminium demand will fall away, as I said, just my thoughts.

If it is going to be aluminum v plastic, which is the better for recycling? I would have thought aluminum. Now that the environmentalists have got the ear of big business and the politicians they will begin to dictate ever more of the green agenda and responsible recycling will play a big role in this. China no longer wants our recyclables so it will fall back into our own back yard. Refined aluminum has value, used plastic is a liability.

 

[sptrawler]

If it is going to be aluminum v plastic, which is the better for recycling? I would have thought aluminum. Now that the environmentalists have got the ear of big business and the politicians they will begin to dictate ever more of the green agenda and responsible recycling will play a big role in this. China no longer wants our recyclables so it will fall back into our own back yard. Refined aluminum has value, used plastic is a liability.

If cars can be made out of recycled plastic and be continually recycled, it solves the issue of what to do with waste plastic.
The reason cars currently aren't made of plastic, is due to structural strength and safety issues, this wont be an issue when cars are electric and drive autonomously.

 

[Ann]

If cars can be made out of recycled plastic and be continually recycled, it solves the issue of what to do with waste plastic.
The reason cars currently aren't made of plastic, is due to structural strength and safety issues, this wont be an issue when cars are electric and drive autonomously.

I think recycling anything is awesome, it would all come down to cost, I should think. What is cheaper to recycle aluminum or plastic? I would have no idea but it could be worth a look. It might give us a view of the future. How many times can aluminum be recycled and how many times can plastic be recycled? What will become land fill first? Just some rhetorical questions for interest, unless someone actually knows the answer?

 

[sptrawler]

I think recycling anything is awesome, it would all come down to cost, I should think. What is cheaper to recycle aluminum or plastic? I would have no idea but it could be worth a look. It might give us a view of the future. How many times can aluminum be recycled and how many times can plastic be recycled? What will become land fill first? Just some rhetorical questions for interest, unless someone actually knows the answer?

I think the energy and time involved in extruding plastic car bodies, would be much less than that required to make the current steel and aluminium chassis/body configuration, it is certainly an interesting time in our history.

 

[Smurf1976]

Plastics I don't know much about in a technical sense beyond saying that energy resources are the actual raw material. Plastics in common use originate largely from ethane (a minor component stripped out of natural gas) and various liquids distilled from crude oil.

So energy is literally the raw material there - if it wasn't used to make plastic then the ethane can be left in the gas and burned (which is the actual practice with what the plastics industry doesn't use), petroleum liquids ultimately end up as fuel, etc.

So whilst plastics don't use much energy to extrude etc, they quite literally are energy resources in their composition.

In contrast aluminium takes a huge amount of heat (from fuel - gas usually) to get from bauxite to alumina which is the "half way" stage of production. It then takes a truly massive amount of electricity to turn that alumina into refined aluminum metal.

Those things are all typically done at different locations. Mine the bauxite where it exists. Turn that into alumina somewhere that lots of fuel is available cheaply which often isn't near the mine. Then turn the alumina into metal somewhere that electricity is available cheaply and that's typically not near where the alumina is made or where the ore is mined.

From a recycling perspective, the often quoted figure is a 95% energy saving to recycle aluminium since you're just melting it down and casting it again, you don't have to repeat the hugely energy intensive steps of refining.

Where that fails is, of course, if the recovered aluminium is too contaminated with whatever to simply be reused. If you've got to refine it again then you're up for a lot more energy yes.

If you're going to invest in aluminium companies then look into their energy supply - that's their single biggest cost (bigger even than labour usually) and the factor which will determine profit versus loss more than anything else. No cheap electricity = game over for smelters and quite a few, including two in Australia in recent years, have ended up in that situation. No cheap fuel = same outcome for alumina refineries and the one at Gove (NT) is gone largely for that reason.

There's also an emerging push toward "green" aluminium as a differentiated product. RioTinto Alcan have done some deals with end users on that basis recently, Nestle would be one of the better known end users with such an arrangement, and it's a concept that has been around for quite some time particularly within the hydro power industry (at the global level the hydro and aluminium industries are heavily related, either by long term contracts or outright ownership, due to the huge power needs of the smelters). So that's trying to create a separate market for aluminium produced from renewable energy - it's a concept that potentially may appeal to the manufacturers of consumer products for image / marketing reasons.

 

[Ann]

There's also an emerging push toward "green" aluminium as a differentiated product. RioTinto Alcan have done some deals with end users on that basis recently, Nestle would be one of the better known end users with such an arrangement, and it's a concept that has been around for quite some time particularly within the hydro power industry (at the global level the hydro and aluminium industries are heavily related, either by long term contracts or outright ownership, due to the huge power needs of the smelters). So that's trying to create a separate market for aluminium produced from renewable energy - it's a concept that potentially may appeal to the manufacturers of consumer products for image / marketing reasons.

So in effect where an aluminum company also owns or is affiliated with renewables such as hydro, this then classifies the Aluminum as 'green'? Am I understanding you correctly Smurf? So far is Rio the only company with 'green' Aluminum listed in Australia? (My goodness you are an amazing fund of information!)

 

[Smurf1976]

So in effect where an aluminum company also owns or is affiliated with renewables such as hydro, this then classifies the Aluminum as 'green'?

Practical examples for two Australian smelters:

1. Tomago Aluminium is located in NSW and sources electricity under contract from AGL (ASX: AGL).

Tomago has a complex ownership structure but RioTinto Alcan is the operator and majority owner (51.55%).

AGL generates the vast majority of this electricity from the Bayswater and Liddell power stations in NSW, both of which use conventional technology and are fueled by coal.

As such, aluminium produced by Tomago has a relatively high emissions "footprint" on account of the emissions arising from the electricity used, albeit generated by an unrelated company.

2. Bell Bay Aluminium is located in Tasmania and sources electricity under long term contract from Hydro Tasmania (not listed, being 100% state government owned).

Bell Bay Aluminium is owned by Pacific Aluminium, itself 100% owned by RioTinto Alcan.

Hydro Tasmania generates the vast majority of its electricity from 30 hydro-electric power stations and two wind farms in Tasmania, and most of the rest from a high efficiency gas-fired plant.

As such, aluminium produced by Bell Bay Aluminium has a relatively low emissions "footprint" since the electricity used, generated by an unrelated company, has a very low emissions intensity. To the extent that Bell Bay Aluminium does have emissions it's primarily from incidental aspects - the anode blocks which all smelters use in production do emit some CO2, emissions from shipping and so on but overall it's at the low end compared to the aluminium industry globally.

Now if a company which purchases aluminium has a desire to market themselves as "green" then they may seek to source materials from low emissions suppliers as part of that. Zero difference in the product, aluminium is aluminium, but they can claim to be doing their bit for the environment by choosing one supplier over another. Same concept as a company saying they won't accept child labour being used on farms and things like that.

The concept is in its infancy but Nestle has a contract with RioTinto Alcan which requires that the aluminium supplied to Nestle is from low emissions sources. Both companies have made some announcements regarding it.

RioTinto Alcan has options with where to source that from since they are also the majority owner of the Tiwai Point smelter in NZ which sources electricity under contract with Meridian Energy (a listed company). Meridian generates this power from various hydro and wind farm operations in NZ and so, as with Bell Bay Aluminium, has a low emissions intensity.

The basic concept behind this is the notion that companies, particularly those with a brand image to protect, maybe willing to pay a premium price for materials sourced in a manner which results in a lower environmental impact. For purely commercial reasons those smelters able to do that, and also their electricity suppliers, are keen on the concept since it improves their viability (and increases the bargaining position of the power supplier also).

To put the costs into perspective, it is widely rumoured in the energy industry that the Tiwai Point deal with Meridian, which was extended last year, is priced at about NZD 55 per megawatt hour (MWh). I don't think either company has confirmed it but it sounds about right, it's the sort of number that you'd expect.

 

[Ann]

The basic concept behind this is the notion that companies, particularly those with a brand image to protect, maybe willing to pay a premium price for materials sourced in a manner which results in a lower environmental impact. For purely commercial reasons those smelters able to do that, and also their electricity suppliers, are keen on the concept since it improves their viability (and increases the bargaining position of the power supplier also).

That sounds like a win/win. Although I am not sure Nestles has a name it wants to protect, more like it is trying to lift its image from years of negative publicity.
Nestlé under fire for marketing claims on baby milk formulas

To put the costs into perspective, it is widely rumoured in the energy industry that the Tiwai Point deal with Meridian, which was extended last year, is priced at about NZD 55 per megawatt hour (MWh). I don't think either company has confirmed it but it sounds about right, it's the sort of number that you'd expect.

How much is the standard $ per megawatt power by comparison?

 

[Smurf1976]

How much is the standard $ per megawatt power by comparison?

Household consumption including distribution fees, GST, retail margin etc will be in the $200 - $450 range generally depending on state and which retailer. Lower rates for intermittent off-peak supply (water heating etc).

At the wholesale level here's the annual averages for Victoria going back to 1999 rounded to the nearest whole dollar:

1999 = 25, 26, 45, 31, 28, 25, 28, 32, 55, 47, 42, 36, 27, 27, 57, 51, 30, 46, 67, 92 and for 2019 to date it's running at 115.23

At AUD $2636 per tonne and paying $60 per MWh for electricity that's $900 worth of electricity to produce that tonne of aluminium or in other words one third of total revenue for the smelter goes straight to the electricity supplier.

That's about the limit economically given you've got to add wages, cost of the alumina, cost of other raw materials such as pet coke, cost of building the smelter in the first place, shipping etc on top and then you'd expect at least some profit.

Needless to say, if the smelters can't get future contracts at that sort of level, if those contracts are priced to reflect the higher prices in the spot market, well then the smelters in Australia won't be viable to continue.

So the basic point in all this is that from an economic and investment perspective, if you're going to invest in aluminium production then make damn sure the company has access to lots of electricity (aluminium smelters) or fuel (alumina refining) and can get it reasonably cheaply since that's their biggest cost by far.

 

[Ann]

At AUD $2636 per tonne and paying $60 per MWh for electricity that's $900 worth of electricity to produce that tonne of aluminium or in other words one third of total revenue for the smelter goes straight to the electricity supplier.

Needless to say, if the smelters can't get future contracts at that sort of level, if those contracts are priced to reflect the higher prices in the spot market, well then the smelters in Australia won't be viable to continue.

Do these companies attract government subsidies? I tend to remember Victoria gave Alcoa smelter a huge subsidy to keep them in Victoria.

 

[galumay]

Yes, power for smelters in NZ and Aus have been able to negotiate massive discounts on power costs. Due to the lack of transparency its hard to tell whether there is any cost benefit or not. (to the public.)

 

[Ann]

High grade Aluminium on the monthly chart has fallen below that central line of support and is heading down to that rising support line coming from February 2009.

 

[Ann]

U.S. Steel, Aluminum Makers Bounce Off Lows on USMCA Optimism

U.S. steelmakers and aluminum producers rebounded off Friday’s lows on optimism that North American allies will implement stronger measures that will prevent excess supply from flooding their domestic markets.

The Trump administration is poised to lift steel and aluminum tariffs on Canada and Mexico in favor of stronger enforcement actions, according to people familiar with the matter. The move helps clear the way for the ratification of USMCA which replaces the old North American Free Trade Agreement.

A S&P gauge of 13 steelmakers pared losses to 1.9% at 11:23 a.m. in New York. The index was down as much as 3.3 percent earlier. Alcoa Corp., the largest U.S. aluminum producer, was down 0.8 percent, after sliding as much as 2.4 percent earlier. More...

 

[Ann]

I found this interesting...profiteering?...

A 100% Surge in Aluminum Price Premium Has Brewers and Bottlers Asking Why

Donald Trump’s trade wars are increasing scrutiny of an obscure process that has boosted how much U.S. beer makers and bottlers pay for aluminum cans.

The chairman of Molson Coors Brewing Co. and a bottler for PepsiCo Inc. are urging the U.S. government to investigate the process used to set benchmark aluminum premiums, which have doubled from 2017 levels in the wake of U.S. import tariffs. And the companies may have an ally in Commerce Secretary Wilbur Ross, who says the jump probably isn’t justified.



.....and then when you look at the chart for High Grade Aluminium it is nothing like the previous chart...

 

[Dona Ferentes]

Leave this to the trading houses, I think

China’s aluminum juggernaut may be running out of road

China’s giant smelter sector churned out an average 105,000 tonnes per day in September, with year-to-date production up 3.3% on 2019.

www.mining.com