Aluminum Glut Means Company’s Petcoke Production, Income At Stake

Calcined petroleum coke, a key raw material commodity in aluminum production, is at the center of a storm.

The plans of many aluminum manufacturers and those in its ancillary aluminum manufacturing businesses are going awry because of the aluminum oversupply in the global market.

One among those manufacturers is the India-based Rain Commodities Ltd. (RCOL), the world’s second-largest producer of calcined petroleum coke used to make aluminum.

A few days ago, the company’s chief financial officer T. Srinivasa Rao told Bloomberg that his outfit would, in all probability, not be able to meet its stated goal of doubling net income by the end of 2013. Which means RCOL will miss its own profit forecast.

Chalk that up to the slide in aluminum prices and, of course, the oversupply of the metal, which has prompted many a smelter around the world to cut down operations.

Rao has now estimated that it would take RCOL two years rather than one to double its income.

Petcoke Production
RCOL and its wholly owned subsidiaries, Rain Cements Limited, Rain CII Carbon (Vizag) Limited, Rain CII Carbon LLC, USA and Rütgers are engaged in the production of cement, calcined petroleum coke and power and high-quality basic and specialty chemicals.

In July 2007, Rain CII Carbon (Vizag) Limited acquired Rain CII Carbon LLC, making the combined entity the world’s largest maker of calcined petroleum coke. Together, operations include calcining plants in the United States and India with a total annual production of more than 2.4 million tons of calcined petroleum coke.

The Bloomberg report stated that the lightweight metal had declined 47 percent in the past five years, making it the third-worst performer on the UBS Bloomberg CMCI index of commodities.

Global Aluminum Market Oversupplied
Furthermore, keeping the overall situation in mind, the Aluminum Corp. of China (aka Chalco), the country’s biggest aluminum producer, announced last week that it would halt some production after United Co. Rusal, the world’s largest aluminum company, cut output by 4 percent in the first quarter.

China continues to be the bane of the aluminum producing world, because despite the price of the metal dropping in the last five years, it continues to pump out record tonnages of aluminum, a primary reason for the present global glut.

Chalco, as the Beijing-based Aluminum Corp. of China is known, said on June 5 that it would temporarily shut down about 380,000 tons of electrolytic aluminum capacity. Only lately have the Chinese begun talking about slowing down.

The Bottom Line for Metal Markets
For metal producers to make money and help revive the demand for calcined petroleum coke, aluminum prices need to go above US $2,300, which is a far cry from the present levels of US $1,930.00-1,9320 a ton at the London Metal Exchange.

So the question on everyone’s mind is – will conditions like temporary supply drawdowns help put the aluminum sector back on its track? Will a revival in Indian and Chinese economies give it the much-needed boost.

And ultimately – will all this be enough?

by Sohrab Darabshaw