Rio Tinto Refines Its Aluminum Businesshttp://www.fool.com/investing/general/2013/12/03/rio-tinto-refines-its-aluminum-business.aspx Rich Duprey
December 3, 2013
The weakened state of the aluminum market continues to take its toll, as Rio Tinto (NYSE: RIO) announced it was closing its Gove refinery in Australia, a move that will cost 1,500 jobs. It's possible the refinery could have remained operational even in the new low-demand environment, but after the government scuttled a deal to provide the refinery with lower cost natural gas there really was little choice available to the miner.
This is a scenario we're seeing played out all across the industry, as miners find themselves forced to cut expenses and non-core projects get the axe. Vale (NYSE: VALE) recently divested itself of its 22% stake in aluminum producer Norsk Hydro (NASDAQOTH: NHYDY) for $1.8 billion, while Chinalco (NYSE: ACH) suspended work on a $1.6 billion aluminum smelter project in Malaysia. Rio Tinto itself shed its position in aluminum products company Constellium for $330 million.
The automotive industry, though, has been a particularly bright spot for aluminum, even if October's seasonally adjusted sales rate dipped below trend. Carmakers are still on track to sell 15.1 million vehicles this year, one of the best results the industry has had in years, and industry executives themselves are much more upbeat about what next year will bring, even if there are pockets of gloom for other heavy aluminum users, including beverage cans, electronics, housing, and semiconductors.
Auto sales are roundly expected to top 16 million next year, and some analysts anticipate metalcutting to hit $7.4 billion, a 20% increase to the expected levels for 2013. From aerospace to consumer medical products there's a general expectation of strong growth, even among those industries that are otherwise seen as stagnant. They might not be robust, but they remain solid nevertheless.
At the same time there's a growing production deficit in metal. Russian giant Rusal says global aluminum usage should hit 51.2 million tons this year, but production is estimated to be 50.9 million tons, and the company is cutting its own production levels this year and next. Overall output is down 5.8% over the first three quarters of 2013 to 2.95 million tons even as demand is expected to rise 10% this year. At the same time, China's push towards aluminum self-sufficiency has continued to