(Corrects first para to show Alcoa is largest U.S. producer,
not world’s largest)
* Alcoa closer to 5-year production cost cut target
* Potential unwinding of financing deals not a concern
NEW YORK, Jan 8 (Reuters) – Production cuts and closures
carried out this year have helped Alcoa Inc, the largest
aluminum producer in the United States, to move 4 percentage
points down the aluminium smelting cost curve, its chief
executive said on Tuesday.
This pushed the company closer towards a key five-year
target of moving 10 percentage points down the global aluminium
cost curve from 51st percentile in 2010 to 41st by 2015,
underlining its bid to become a more competitive producer.
“With production curtailments in Spain and Italy we have
moved down the aluminium cost curve,” chief executive and
chairman Klaus Kleinfeld told analysts on a conference call
following the release of the aluminum giant’s fourth quarter
results.
In the face of lower aluminium prices Alcoa cut 240,000
tonnes per year of smelting capacity in Spain and Italy and
permanently closed 291,000 tonnes of capacity in the United
States in 2012.
Reducing production costs is a must to remain competitive in
a market which is seeing supply increase dramatically, analysts
said.
Alcoa, however, expressed cautious optimism that demand for
the metal will continue to grow in 2013, helped in part by
global growth in the aerospace and construction markets,
essentially balancing strong supply growth.
Kleinfeld also said he expects financing deals to continue
to soak up large amounts of aluminium, while premiums — money
paid over the benchmark London Metal Exchange (LME) cash price
to secure physical metal — should remain strong.
In financing deals, traders or banks buy the metal from
producers then sell it for future delivery to speculators at a
profit, in a market spread known as ‘contango’, when futures
prices are higher than spot prices for immediate delivery.
This practice, which has locked record amounts of aluminium
in metal warehouses in the last few years, has made it more
difficult for industrial users to get hold of the metal, pushing
the regional premiums to record highs in 2012.
“Aluminium held by financial investors is a function of the
contango and of the low interest rate environment… There is
confidence that this environment will continue,” Kleinfeld said.
“We are we not concerned about investors stopping to buy
metals. The moment that happens is when interest rates go up.
This will happen only when the economy picks up again and when
the world economy picks up you have a compensation through a
physical demand pick up.”
Kleinfeld said aluminium prices might rebound in 2013 if
macro conditions improve as expected, adding that prices remain
largely driven by macroeconomic news rather than fundamentals.
(Reporting by Silvia Antonioli; Editing by Richard Pullin)
