More production cuts by aluminium smelters are necessary in order to adjust supply with the existing demand, a senior industry official said.
The industry has about 3.8 million tonnes of aluminium, which is 60 days consumption and the highest ever for the metal.
"There is an urgent need to adjust production. The global industry is expecting the Gulf countries to look into these factors," said Brent Reitan, Executive Vice-President, Alcoa. "But these are decisions that the individual producers have to make."
According to him, the Gulf will certainly be the area of growth for the aluminium industry. "You have an industry, which is already established and has been on for almost 30 years. There is no doubt growth in the aluminium industry will happen here. And then you have the low energy costs, which is very crucial for aluminium smelters. There are several projects on their way, which is proof of that situation," Reitan added.
Speaking to Emirates Business on the sidelines if the 14th World Aluminium Conference in Dubai, he said demand across the globe will continue to go down by almost seven per cent during 2009. The market presently is witnessing a massive oversupply forcing many smelters across the world to either cut production or even close down smelters.
"The current economic crisis has resulted in an oversupply of aluminium and the industry is adjusting to that. Companies are cutting back on production, which is needed because we now have about 3.8 million tonnes of metal, which is 60 days consumption, the highest ever for the metal. This situation clearly needs to be corrected and that is why we are witnessing the cuts," he said. "Therefore, it is only logical that more capacity is cut in order to balance demand and supply instead of just producing for inventory, which is not good for anyone."
According to Reitan demand for aluminium is going to drop by about seven per cent during 2009. "As I discussed in my presentation, we are down on consumption by three per cent during 2008 and another seven per cent globally this year. That is the trend so far. Whether the second half will change that or not remains to be seen," he said.
A revival, according to Reitan, will depend on when the economy turns over and how the various stimulus packages will work.
"All sectors, including the construction industry, are experiencing slowdowns. The oil industry was the only sector where things kept moving reasonably well. But lately I am being told that some oil and gas projects are also being affected," he said.
The year 2010 would depend on when the turning point in the economy occurs, he said. "It depends on the success of various initiatives and the normalisation of the financial markets for the economy to develop. As far as prices are concerned, it is very difficult to say and predict," he added.
"We have had a dramatic drop, almost a 60 per cent drop to the bottom from July last year. We have recovered a bit now from 1,300 to 1,500. However, it will be difficult to say where the industry will move from here. We are all hoping that it moves upwards," he added.
The industry, however, will continue to find demand across the globe. "It is a global industry. Smelters will continue to produce but the growth will come from regions where there is available energy. Apart from the Gulf, we have other areas such as north Iceland, Greenland and Brazil where the aluminium industry is poised for growth," said Reitan.
By Joseph George
© Emirates Business 24/7 2009
