CRU: Aluminium VAP a Complex Route to Better Smelter Margins

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.

Read the full story:
https://www.crugroup.com/knowledge-and-insights/insights/2019/aluminium-vap-a-complex-route-to-better-smelter-margins/

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About CRU

CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

CRU employs over 280 experts and has more than 11 offices around the world, in Europe, the Americas, China, Asia and Australia – our office in Beijing opened in 2004 and Singapore in 2018.

When facing critical business decisions, you can rely on our first-hand knowledge to give you a complete view of a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

CRU – big enough to deliver a high-quality service, small enough to care about all of our customers.

SOURCE CRU