25 February
London,
Dow Jones

LONDON -(Dow Jones)- Another disruption to aluminum production this year, particularly in China, could push prices past the mid-$3,000 a metric ton level, Rio Tinto Alcan Chief Executive Richard Evans said Monday.

"If you had another shock of some kind that would take capacity offline…and the market did go into deficit, I think it would be very interesting to see how much price response you might get in the curve," Evans told Dow Jones Newswires.

"I think it is not unrealisitc to think that if there was another shock you could have short-term prices jump into the mid-3,000s or even higher," he said.

It was a "reasonably probable scenario" that the aluminum market would shift from surplus to deficit this year, Evans said in an interview.

Diversified miner Rio Tinto PLC (RTP) acquired Canada’s Alcan Inc. last year for $38 billion. BHP Billiton Ltd. (BHP) has since pitched a $147.4 billion takeover bid for Rio Tinto.

Meanwhile, aluminum prices have climbed steadily as power disruptions in South Africa and China have affected aluminum production.

South African utility Eskom has said it can only guarantee 90% of supply, while in China authorities are still working to restore power in parts of the country following severe weather.

Aluminium prices Monday hovered around $2,900 a ton, up from $2,463 a ton Jan. 24.

Higher aluminum prices also reflect a repricing of inputs amid a shift in energy and electricity costs, more expensive bauxite and alumina — the raw materials for aluminum — as well as a weaker U.S. dollar.

"I do basically think that the market reflects the general realization that there has been a repricing of the aluminum curve," Evans said.

The South Africa power crisis has forced Rio Tinto to reconsider plans to build a smelter in the country.

Evans said Rio Tinto would delay a decision on building its Coega project for one to four years and in the meantime would divert engineering and financial resoures to expanding capacity at existing facilities in British Columbia, Quebec or Oman.

"We are not going to build a smelter unless we have high assurance there will be power," Evans said.