Weak natural-gas prices are unlikely to significantly lower cost pressures for North American aluminium smelters, said Barclays Capital in a daily commodities research note.
According to Barclays, the sector is generally perceived to be in the midst of a structural change in which low prices and rising costs will ultimately drive the closure uneconomic producers, eroding spare capacity in the market.
The weak natural-gas prices are doing little to ease those cost pressures in the U.S. In fact, even though U.S. natural-gas prices fell nearly 60% since 2008, average regional smelter electricity costs rose by 32%. Natural gas was used as a power source by just 2% of North American smelters last year, the bank added.
Further, smelter power tariffs are often fixed for the long term and in many cases are linked to aluminium prices, which rose by 30% from 2009-11. For smelters to benefit from lower natural-gas prices, they would either have to build new gas-fired capacity or close their current self-generation capacity.
“If the cost-benefit of such strategies makes sense and parties can agree to new terms, then this obviously cannot be ruled out. However, the fact we have yet to see any announcements to this end in 2012 so far indicates the aforementioned challenges make it an unlikely near-term substantive influence on aluminium production costs trends,” Barclays concluded.
Source: Commodity Online