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BHP Billiton weighs Mozal expansion
Allan Seccombe
Posted: Tue, 29 Nov 2005

[miningmx.com] -- BHP Billiton was in talks with South African power utility Eskom to supply more power to its Mozal aluminium smelter in Mozambique ahead of a 250,000 tonne expansion, said Alex Vanselow, president of the group’s aluminium division.

Mozal produced 551,000 tonnes of aluminium in the 2005 financial year, record output.

“We have finished a feasibility study on Mozal III and we are in discussions with Eskom and Mozambique to source power, but there’s nothing at this stage that we can disclose,” Vanselow told an analysts' briefing on aluminium.

The plan is to add another potline, which would increase capacity by 250,000 tonnes, he said, declining to reveal the costs because there was “still some work to be done.”

There are a number of brownfield expansions projects BHP Billiton was considering to increase output, apart from employing higher amps at its existing smelters to boost production.

A proposal to increase output at the Alumar smelter in Brazil has been taken to the board for consideration. However, there are some outstanding matters to resolve with its joint venture partner, Alcoa. The plan is to raise production to 3.5 million tonnes from the current 2 million tonnes/year.
The market is extremely tight
On a broader front, supplies of alumina, the raw material needed to make aluminium, are expected to remain tight over the next couple of years as demand continues to race ahead of refineries. The refineries were operating at full capacity, said Julius Matthys, BHP Billiton's aluminium division marketing director.

“The market is extremely tight and utilisation rates are at 100%,” he said. “Through the whole of 2006, utilisation rates will stay at extremely high levels, which is effectively 100% of capacity.”

The tight market conditions are expected to ease slightly in 2007.

Any hiccup in production would be seen instantly in prices, he said.

BHP Billiton sees primary aluminium consumption rising to 51 million tonnes per annum (mtpa) from 32 mtpa this year. Chinese demand is expected to more than double to 16 mtpa in that period.

Global use of primary aluminium will have increased fivefold from 1970 to 2015. The whole aluminium industry has a turnover of $180bn/year.

Aluminium producers, particularly those in Europe and the United States, face a tough ride, particularly because of increasing power costs as sky-high fuel prices are felt, said Rod Kinkead-Weekes, the vice-president of aluminium strategy.

“In general, what we’re seeing is project delays and the supply side struggling to keep pace with demand,” he said, explaining there were rising input costs of power, coke and alumina, which is made from bauxite.

Economic bauxite deposits have been consumed, he said.

“One could say the fat rabbits have been caught. The remaining resources are in more challenging countries where things move more slowly and project risk is much higher… Alumina supply will be stretched for some time,” he said. The higher input costs are bad news for expensive aluminium smelters.

“It’s good for (aluminium) prices, it’s good for those at the bottom of the cost curve and those with locked in or hedged inputs,” he said. “This will be serious for some at the top of the cost curve particularly those with expiring power contracts.”

“We’ve already seen smelter closures in Europe and the US and there will be more to come and this is fundamentally because power prices will be structurally higher in those regions than in the past.”

Matthys said an estimated 20% of EU smelting capacity has to renegotiate power contracts before the end of 2007.

Robin Bhar, a metals analyst at UBS in London, is reported by Dow Jones, to estimate that a million tonnes of European aluminium smelting capacity could be closed down because of high energy costs.