LONDON, Nov. 14, 2019 /PRNewswire/ -- As value-added product (VAP) output at primary aluminium casthouses is on the rise, it remains complicated to understand where to find the best profits considering the capital spend.
CRU's unique Aluminium Casthouse Cost Service unravels the underlying expenses of VAP production and pitches it against the premiums that each product stands to earn. Aluminium wire rod profits are expected to be the most attractive next year on the back of healthy demand from national grids, telecoms and electric vehicles. Here, we analyse who holds the strongest cost position to capitalize on these healthy margins.
The chase for better value-added profits
While CRU has provided VAP premiums since 2013 via its Aluminium Casthouse Shapes Market Outlook, 2018 was the first year that a detailed Aluminium Casthouse Costs Service was offered. This is the only product of its kind on the market that delivers product-by-product analysis of costs of production, from raw materials through delivery of metal and corporate overheads. This year, the model includes 219 primary casthouses for ingot, billet, primary foundry alloys (PFA), slab and wire rod, from years 2010 to 2029, and a more in-depth regional data on alloying metal and scrap prices.
As demand for aluminium products has increased outside of China by 45% in the last decade, we have also seen VAP's share grow by 8% for the same period. The next five years alone will add a further 4.1 Mt in value-added production, a 5.2% increase in proportion of global primary casthouse output. The largest developments will come from operators in Asia (ex. China), the Middle East, Russia and the rest of the CIS. The trend is clear that producers will continue to chase better profits by moving up the value chain, but where to focus on is a more complicated question.
When capital costs for casthouse capacity often exceed $300 per tonne, producers need a strong understanding of their competitive position. This requires an evaluation of the incremental cost and potential earnings in both domestic and foreign markets across an array of VAPs. CRU's casthouse service enables this by assessing the additional cost of producing a VAP over the cost of ingot, against the premium upcharge available for any asset, country, region or owner. The result is a margin that represents earnings, or net income, that could be made if a producer chooses to move into that market.
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