Petcoke: the ticking time bomb at the heart of aluminum – by Andy Home (Reuters U.S. – September 16, 2015)

LONDON – The world is producing too much aluminum. That’s what the price says. London Metal Exchange metal for three-month delivery is currently trading just above $1,600 per tonne, a level which is simply not sustainable for many higher-cost producers.

There have been plenty of smelter closures and curtailments. But not enough, particularly in China, which is exporting its surplus to the rest of the world in the form of semi-fabricated products.

Widespread allegations that some of these are “fake semis” have added extra heat to already simmering trade tensions. Aluminum’s problems have a lot to do with the metal’s production process.

Bauxite, the key metallic input, is a commonly occurring mineral and one that can be easily scooped out of the ground without the need for “hard rock” mining.

That abundance of supply has been proven by Indonesia’s ban on exports of bauxite to China. Chinese smelters have wasted no time simply switching sources, particularly to Malaysia, a country with virtually no bauxite sector until one was needed.

Smelters, meanwhile, are capital intensive to build and costly to shut down. Electricity, the second most important input for making aluminum, acts as a brake on industry’s responsiveness to low prices because so many smelters have locked themselves into long-term supply contracts.

Which is why the aluminum sector has a long, long history of over-producing during times of demand and price weakness. There is no easy cost point at which the supply chain can react, unlike most other metals, where mining is the response valve.

But might that all change in a couple of years time? Might the aluminum production sector, currently swamped with excess output, face its own supply chain challenge?

Yes, according to a new study by three consultants, AZ China, Cascade Resources and Turner Mason and Co.(“Anode coke outlook to 2025”)

Readers may well recognize the first of those names. AZ China is a respected specialist on all things concerning the Chinese aluminum sector.

But maybe not the second two, because they specialize in carbon products and petrochemicals respectively.

And this is a study on the availability of the third, often forgotten, input into the aluminum production process, carbon anodes.

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