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State Unitary Enterprise

Production cost

(The data are presented at 01.01.2014)

Analysis of the last 2 years has confirmed the expert forecasts of the company: during the crisis of 2008-2009 cost for aluminum reduced together with its value of sales, in 2012-2013 the aluminum cost increased and crossed with its market price that reduced. This is due to rising energy costs and sustained rates of alumina based on index.

Aluminum price in comparison with its cost $/t

Raw materials

Analyzing the change of alumina index and seeing it in the light of net balance, where the ratio «supply = demand» is considered without financial speculation (one of the key problems of the industry is financial speculations for a fall that move the margin from the manufacturer to the speculator) and accumulated reserves, we find a very high index at the level of 17-18% of aluminum price.

Aluminum price in comparison with alumina price

If in 2002, the average cost of alumina per ton of aluminum was $ 540, than in 2013 the cost of alumina in aluminum cost increased almost 2 times and was $ 1064. Similarly, the cost of anodes grew from $ 200 in 2002 to $ 400 in 2013.

Raw materials for aluminum production $/ton

Price for coal (6000 kg), $/ton, Europe CIF, Australia FOB

Historically aluminum-alumina ratio was about 14%. Reverse counting shows that when the price for alumina is $ 320 / ton, the real price for aluminum should be about $ 2,285 / ton. However, today when the world aluminum cost is $ 2,100, the aluminum price is only about $ 1,800.

Expenses of aluminum production in comparison with aluminum prices

  • Average global costs of aluminum production
  • Aluminum price at LME
  • The aluminum price calculated through aluminum oxide

The high index for alumina was attractive to investors and led to expansion of aluminum production, while the demand went down. In 2011, excesses began to form at the alumina market. In 2012, Indonesia changed the export rules for bauxite (it increased export taxes) and reduced their presence. All the manipulations resulted in grown prices.

World balance and alumina prices

Balance          Spot price

Investors turned their attention from alumina sector to bauxite market, as investment in bauxite industry is cheaper and the payback period is shorter.

Refining costs of alumina in comparison with alumina price

Average global costs for alumina refining              Spot price

Analytics predict an increase in coke prices due to annual growth in aluminum production by 8%. On the chart, you can see the ratio and growth dynamics of the coke price to the aluminum price on LME: in 2006 it amounted up to 10% today – to 22%.

Petroleum coke (PC) in comparison with aluminum (Al) at LME 1995-2013

Energy

The lion's share of the aluminum cost (about one third) takes energy, and any increase in energy rates inevitably leads to the growth of the cost.

Aluminum production is a very energy-intensive process. To produce a ton of aluminum the plant consumes 15-16 MW / h of electric power that is 25-30% of the metal cost. If we trace the changes in aluminum and energy prices, we can see identical trends. During crisis when the price for aluminum falls below a certain level (approximately $ 1,200 / ton), producers cannot cover energy costs and suffer losses. At the time many companies are striving for cooperation to minimize their energy costs. In addition, some of them transfer their productions to alumina-producing areas or to the countries with cheap labor and energy. Also, in order to reduce energy expenditures aluminum produces increase the share of hydro power in production. Its advantage is the renewability and harmless to the environment.

Transport

Transport costs have a great influence on the aluminum cost.

A feature of global aluminum market is an imbalance in the placement of resource base and largest consumer. Despite the fact that the countries-owners of raw materials are Brazil, India, Saudi Arabia, and countries of North America, the major bauxite deposits are located in Central Africa, in particular, in Guinea, about 40% of world reserves are in Australia, and the largest aluminum producer and the largest aluminum consumers are in Northern Hemisphere. This geographical feature is one of the factors of its high cost. Transport expanses increase the aluminum cost.

Today, low sea freight rates allow the bauxite export from the Atlantic to the Pacific to be profitable. But soon there can be changes in the sea freight cost because of significant reduction of new orders for shipbuilding in 2014-2016. While the fleet retreatment continues, the volume of maritime traffic increases.

Demand, supply and utilization factor - a vessel with dry weight (in bulk) 10,000 dwt+

Besides the remoteness factor of producers from consumers, increasing tariffs for railway freight have impacted on the profitability of aluminum production. High rates lead to the fact that in many cases it is more profitable to deliver aluminum by road transport over long distances.

Structure of aluminum cost

The structure of aluminum cost at modern enterprises 

 

  • Raw materials
  • Electro energy  
  • Indirect expenses

 

  • Transportation
  • Remuneration of labor