MINERAL REVIEW AND FORECAST: BASE METALS; ALUMINUM

The international aluminum industry faced one of its most difficult years in 1991. While Western World demand for aluminum increased slightly over 1990, increased world production along with increased exports from the former Soviet Union resulted in an increase in inventories and low prices. On the London Metal Exchange (LME), prices tumbled to their lowest levels since 1982.

Canadian aluminum smelter capacity increased by 200,000 tonnes in 1991 to 1.84 million tonnes. Production of primary aluminum in 1991 was 1.82 million tonnes compared with 1.57 million tonnes in 1990. Canadian exports of primary smelter products during the first nine months of 1991 were 1.11 million tonnes, compared with 944,400 t for the same period in 1990. Exports to the United States in the first nine months totalled 723,900 tonnes compared with 660,500 tonnes for the same period last year.

Late in the year, Alcan Aluminium reduced production by 21,000 t/y at Shawinigan, by 24,500 t/y at Isle-Maligne, and by 22,000 t/y at the Arvida smelter at Jonquire. The temporary closures were considered necessary due to the weak price of aluminum combined with water shortages in the Saguenay-Lac-Saint-Jean region. Reduced reservoir capacity required Alcan to purchase relatively high-cost supplementary power from Hydro-Quebec.

Kemano Suspended

Construction at Alcan’s Kemano Completion project near Kitimat, B.C., was suspended last summer while Alcan appeals a ruling that the project must undergo an independent environmental review. The project was designed to add 540 megawatts of generating capacity by 1994.

In March, Aluminerie de Bcancour completed the $500-million expansion of its smelter at Bcancour, Que. The addition of a third potline increased the plant’s total capacity to 360,000 t/y.

In April, Canadian Reynolds completed the $500-million expansion of its smelter at Baie Comeau, Que. The addition of a fifth potline increased production capacity to 400,000 t/y from 280,000 t/y, making it North America’s largest aluminum smelter.

The new Aluminerie Lauralco smelter near Deschambault was nearing completion by the end of 1991. The $1-billion plant is wholly owned by Alumax of the United States and is scheduled to begin operations in February, 1992. It is expected to reach its full production capacity of 215,000 t/y by the autumn of 1992.

Operations are set to begin in June, 1992, at the new Aluminerie Alouette smelter located at Sept-Iles, Que. The $1.4-billion project will have a production capacity of 215,000 t/y.

Prices and stocks

Prices on the LME averaged US59 cents/lb in 1991 compared with an average price of 74 cents in 1990. Reduced demand resulting in high inventories pushed the aluminum daily spot prices to just below 49[cents] in December.

Despite production cuts totalling about 800,000 tonnes, LME inventories continued to rise, largely due to increased exports from the former Soviet Union. Inventories increased to record levels well over 900,000 tonnes from about 300,000 tonnes at the beginning of the 1991.

The International Primary Aluminum Institute reported that total Western World aluminum inventories in November, 1991, were 3.35 million tonnes compared with 3.08 million tonnes in November, 1990. Primary aluminum inventories had increased to 1.71 million tonnes in November, 1991, compared with 1.46 million tonnes in November, 1990.

Outlook

Western World smelter capacity should reach 15.95 million tonnes by the end of 1992. Canadian capacity will peak at 2.27 million tonnes. Strong growth in demand for primary aluminum of between 3% and 4% is forecast for most of the 1990s. The transportation and packaging (in particular beverage cans) industries are expected to lead the demand.

The recently established Concernalumini announced in mid-January that Russia intends to maintain exports in 1992 at the same levels as 1991, about 650,000 tonnes. A number of problems, however, including bauxite quality and supply, shortages of fuel for power plants, the transportation network and environmental pollution, may hamper Russian efforts to export.

Prices are expected to remain in the US50-55 cents/lb range for at least the first half of 1992. Contracts linking power and alumina costs to the international price of aluminum reduced operating costs for many smelters. This has resulted in the combined effect of increased production, higher inventories and weaker prices. As the economies in North America and Europe recover from the recession and inventories are depleted, prices are expected to rise to about 60 cents by year-end. Continued exports from Russia at 1991 levels without corresponding cutbacks by western producers, however, could reduce any price recovery. In the longer term, as the demand for aluminum increases, prices are forecast to average between 70-80 cents in constant 1990 dollars.