LONDON, Aug 27, 2010 (Dow Jones Commodities News via Comtex) -- The pivotal level for whether or not aluminum smelters are able to operate profitably is $2,000 a metric ton, the Chief Executive of Netherlands-based Vimetco NV (VICO.LN) told Dow Jones Newswires Friday.
According to Frank Muller, the $2,000/ton level is "borderline" for many smelters. "Below this level, a lot of smelters find it very difficult," he said. "The economic crisis has not gone away--we will see further shutdowns," he said.
Some of these closures--which are expected to happen mainly in China because of the country's high cost of energy--will likely be permanent, Muller added.
Vimetco, which joined other aluminum producers in slashing budgets, reducing capacity and delaying projects during the economic downturn, restarted its investment program in 2009 as market prices and demand improved. The company--the seventh-largest aluminum producer in the world--is focusing on high value-added products as it grows its business.
Muller said the company is currently producing around 760,000 tons a year in China and 206,000 tons in Romania. Production at its Chinese operations will rise by around 90,000 tons as the company completes the third stage of an expansion, while a potline of about 46,000 tons has been idled in Romania.
"Our focus is on quality--demand [for metal] rises when quality rises, and this is a key issue for improving the market in China," he said. "With a quality product you can substitute imports or low quality domestic production in China," he added.
The company doesn't face the same exposure to high coal prices as domestic Chinese smelters do because it has its own integrated power supply. Muller said the company remains confident that China's demand for aluminum, used in construction and automotives, will continue as the world's biggest consumer of the metal feeds its voracious appetite for growth.
For example, the rate of growth in the Chinese car market is an extra 1 million cars a month, with each car accounting for some 170 kilograms of aluminum, Muller said.
The company's primary aluminum production rose 54% year-on-year in the first half 2010, to 429,000 metric tons.
Primary aluminum sales were also higher at 437,000 tons, a rise of 46% on year.
Processed aluminum production was up 29% at 62,000 tons and processed aluminum sales rose 54% to 58,500 tons, the company said.
Net profit for the first half was meanwhile unchanged at $15 million.
"The successful continuation of our vertical integration strategy, combined with the investment made in China and a tight focus on cost control has had a positive impact on the business," said Muller. "We have continued our policy of securing raw material and energy sources along with continuously improving our technology and the range and quality of our products."
The aluminum producer, which has the capacity to produce around 1.1 million tons annually at operations in China and Romania, reported primary metal sales of 649,000 metric tons and processed products sales of 88,000 tons last year.