The ENAL Newsletter Editorial Page

Trends in Primary Aluminum to keep in mind in 2011-2012.

2011-10-04T08:48:00.000-04:00

In 2012, the global uncertainty regarding the differential between LME prices and energy rates will increase; not much, but enough to encourage prudence, therefore delays, in investment projects. This except for India where very close integration of energy generation and smelters is high, and both coal and aluminum enjoy a protected and fast growing market. Even in the Middle East, the question whether the best use to make of petroleum or gas is to convert it in aluminum or not is getting more popular.
However, we must keep in mind that since 2000 LME prices are not as reliable as they used to. Andy Home, a Reuters columnist, reminds us that this was the year when the exchange moved from its original mutual not-for-profit status to a shareholder structure. In other words, objectivity is gone, so let’s be careful. Nevertheless, this uncertainty on relative energy and aluminum prices is encouraged by the Fukushima effect, Germany setting the example with a plan to reduce dependence from nuclear. General trend in Europe is: If we move away from nuclear we will need more gas (solar and wind power cannot take over that fast, and will remain expensive per kW capacity and per kWh produced). Putin is very willing to help with gas, and will help, but at a price. Translation for oil & gas exporting countries: Let's sell gas too, unless aluminum prices go real high. Will they? No.
Non-food agriculturals index (NFA i. e. timber, non-food oils, resins, fibers, clothing, energy, cosmetics and plastics, in which the fastest growth is mostly bio-fuels) have been going 50% up from mid-2010 to mid-2011, against 43% for food commodities, only 32% for all metals, 29% for petroleum, and 24% for Gold (The Economist figures). LME Aluminum prices have been going up last 10 years, but not that much up if we forget the big bubble of 2005-2008 when it went close to $3,000. Because world recession is just beginning to show, all metal prices are now shaky except copper. Aluminum still is well above $2,000/tonne but it is not the same dollar as in 2007: And from Sept. 2010 to Sept. 2011, all it did was up then down. Translation: If aluminum price is expressed in kWh as a currency, its price is going down. This is short term, of course but all this hides a deep trend reversal for the next ten years. In 2012 I think it will only begin to show. Paul Robinson (CRU) said at a recent LME seminar that aluminium is top among base non-ferrous metals in terms of consumption growth prospects, followed by nickel, zinc, copper, lead and lastly tin. But Oleg Mukhamedshin, RUSAL's director of corporate development, said in an interview ahead of LME Week that global aluminium prices cannot fall much further, with as much as two-fifths of global production already unprofitable and demand likely to hold up. "Prices for aluminium, in contrast to copper, have reached their minimum." I am pessimistic regarding global growth. It will not materialize; and neither will all the investments needed to address this theoretical demand. Applications of aluminium keep shifting very slowly: 30 years ago aluminum was used 1/4 in automobile, 1/4 in electrical conductors, 1/4 in construction, 1/4 in packaging. Now it is more like 50% automobile, and the electric or hybrid car will favor that. The world auto market may very well calm down but the shift towards fuel efficient cars, electric and hybrid cars will push aluminum applications. China, where the auto industry is still growing strongly, will according to RUSAL become a net importer of aluminum in "some quarters" of 2012. Translation: In China, despite fast growth (now slowing down), investment is moving downstream from primary industries.
What the world badly needs is new technology producing aluminum with less energy. Of course recycling is gaining ground, since it costs in energy only a few % of what primary metal do. Innovative smelting technologies are now on the horizon. We think their time has come, but here we get into longer term... More on this later this winter.
Conclusion for our subscribers who manufacture equipment for smelters: Look as usual at China, India, Middle-East, Russia, but also look at minor revampings wherever energy contracts have been renewed in a way that guarantees bare survival for the smelter, or wherever an old smelter has its own power plant. All greenfield smelter projects in countries who aren't yet aluminum producers are delayed.

A major event took place on March 1st, 2011: Alcoa made the decision which should hit all smelters of the world with obsolescence.

2011-03-05T03:08:00.000-05:00

Alcoa has acquired from ORKLA (Norway) 100% of the Carbothermic Smelting Technology applied to primary aluminum. It means that its management and engineers are convinced that the time has come for the 130-year old Hall-Heroult process to finally fade gently away during this decade, as did the steam engine at the turn of last century. Heavy trends prevailing today, whether energy costs, environment concerns, moving away from megaprojects towards “small is beautiful”, will of governments to create jobs addressing first local markets, or simply cost cutting, will impose this technology as soon as it is proven at full scale. This should be accomplished by the end of this decade. Read more...

Uncertainties in the World of Aluminum Investments in Mid-2006

2006-07-24T14:06:00.000-04:00

Around 2000-05, the world economy began growing faster than at any time since the post WW2 era. This is mainly a consequence of a general progress towards republican institutions (Rule of Law, Individual Rights, Limited Government, Free Trade) which originated in the 80’s. The effect is felt in Latin America (since the 80’s), in ex-Communist countries (Central Europe, and now Russia and CIS countries), in China, in India, and now even in Africa although not in all countries and not without some serious tensions.

Economic growth means growth of energy consumption, which means more generating capacity. Building new power plants means facing political objections, the main ones being concerns about environmental impacts, others being more political objections regarding sustainable growth and even objection to so-called “globalization” of economy.

The business world begins to realize that the general resistance to so-called “globalization”, meaning in the minds of classical economists resistance to wealth creation through optimization of resources and markets according to the eternal dogma of the Market’s “Invisible Hand”, happens not because the world opinion is really turning against Adam Smith’s famous theories, but because so-called “Capitalism” is seen as degenerating into “Stock-Optionism”. Stock-Optionism being the system creating a link between the shutdown of a faraway plant, the anticipated cost reduction supposedly resulting of it, the anticipated increase in profits, and the anticipated increase in stock prices, this in turn benefiting insider trading and stock option holders who can cash in now on these cumulated anticipations. This link has a name: the strategy aiming at stockholders’ value creation as a goal in itself, instead of as a consequence of a successful competitive strategy. Whatever can be your opinion about Stock-Optionism, it triggered a resistance to Globalization which impacted on investments in energy capacity whether new capacity or refurbishing.

Energy prices had to go up first to force public opinions to concentrate on the real issues and approve the following measures:

The world economy needs to keep growing if underdeveloped countries will achieve a decent living standard; this means more energy generation.

Growth can be sustained with a more optimal use of energy; various energy savings measures will be encouraged. Energy consumption per capita, today of 20-50 GigaJoules/Year in developing countries, of 150-200 in Europe and of 350 in North America, should progress to around 150GJ throughout the world. Even such modest goals mean a total generation capacity multiplied by about 4 in 2050.

Thermal and nuclear power plants will supply the bulk of new capacity during the next 30 years;

CO2 emissions do impact on global warming, and they must be controlled, eventually eliminated; this will trigger higher energy costs. World emissions reached 7.8 Gigatonnes of carbon in 2002. If nothing is done they will reach 12 Gt by 2030 which may not yet provoke major climate changes, but would mean that unavoidable future growth will lead to such a situation. A reasonable plan in the context of the Kyoto Protocol aims at a peak of 11.5 by 2025, then a downtrend leading to a figure of 9 Gt by 2050. Massive reforestation will be pursued, which will both help solve the CO2 problem (trees and some high-fiber plants consume CO2 to generate cellulose through the chlorophyllian conversion), help the pulp & paper industry and reclaim soil in arid lands.

Natural gas, a noble form of energy that can be and is more and more used as motor fuel as well, generates half less CO2 than coal. It is getting cheaper to ship. It will be favored, but for these very reasons its market prices will increase further.

The share of electrical energy in total energy consumed by industry and consumers has been growing and will continue to grow, from 18% in 2002 to around 50% in 2050;

Renewable energies (wind, solar, biomass, photovoltaic, others)will take a bigger share in capacity (perhaps 50% in 2050) but conventional energies will keep growing in capacity in absolute terms if only to reach the above goals. They will all represent high-cost energy, even when subsidized; not suitable for aluminum smelting.

Consumers and industry must prepare for generally higher energy prices.

On top of that, political considerations impact on energy markets: The Middle-East is part of the Arab World, considered more and more as hostile to the United States, to other “Anglo-Saxon” countries and to many European countries. It also controls some 40% of world oil production, which in theory constitutes a political risk. War situations in the Middle East have, since 1948 onwards, put growing pressure on oil availability and prices. There is a stronger incentive for the US, and also for Japan and Europe, to encourage self sufficiency in energy generation.

Aluminum producers must adapt therefore, not only to a general increase of energy prices and to a gradual vanishing of “Power Islands” offering excess energy at discounted prices, but also to a higher differential between long term energy costs and energy prices.

However since aluminum prices and demand are increasing, all this should constitute a generally favorable context for aluminum investment. And it is. Yet, one can wonder why so many large greenfields keep being delayed. One can also wonder why supposedly obsolete Soderbergs are now revamped and extended, when everyone knows that they pollute more and they are less efficient; and why many older, smaller prebakes do the same.

Reasons are:

a) The bigger the greenfield, the bigger is the 10-year energy contract to negotiate. Energy suppliers do not have excess capacity anymore. They prefer smaller contracts, easier to handle in case of big shifts in demand.

b) The bigger the greenfield, the more it will be dependent on export sales to faraway destinations of ingots, billets or sows. Also bigger will be the energy lost in casting, then shipping and remelting the metal. That factor was negligible when energy costs were low. Now it is not.

c) The bigger the greenfield, the higher is the risk of capital cost over run.

d) Capital costs per tpy in a revamping or extension are roughly half the ones in any greenfield.

e) There are more and more opportunities for an older, smaller smelter, to invest in the casthouse to move into high added value semi-products for a local market.

f) Shifting to Lithium Bath, thus increasing conductivity and reducing temperature, means often the fastest way to increase the bottom line for a minimal investment.

Of Norway, Quebec, Iceland, Siberia and British Columbia: The Political Questions behind Energy and Aluminum around the World.

2005-09-17T05:43:00.000-04:00

Once upon a time, there was a nice hydropower plant nearby an isolated community. Thanks to cheap energy, energy intensive industries had built plants (an aluminum smelter, ferro-alloys, foundries, paper and cement mills, steel mini-mills…) and created jobs. The power plant had been built by visionaries of politics and engineering some 50 years ago.

Thnaks to cheap energy and heavy industries, infrastructures had been built: roads, bridges, tunnels, better connecting the community to the world. Thanks to these industries, skills had accumulated. Schools and technology institutes had attracted students, scientists and teachers. The technology environment thus created had incited ideas for new processes, and machinery manufacturers were born to exploit these ideas, who began exporting. Other industries, less energy intensive but hiring more skills, had moved in, attracted by the manufacturing environment. And all the range of subcontractors and service businesses had followed. A new, diversified economic region was born called Kitimat (British Columbia), Bratsk (Siberia), Ardal (Norway), Grenoble (France), Reykjavik (Iceland), Steg (Switzerland), Washington State, Quebec, etc.

Then something good happened: The energy market became more global thanks to deregulation and lower cost technologies for high Voltage transmission. It became possible to transport energy from the hydropower plant to a far away country with a big population that lacked generation capacity and where energy prices were climbing sky-high. Meanwhile, the local government followed the trend and privatized its hydropower plant. The new owners became aware of the opportunity to make higher profits selling energy on the export market and increasing rates for the local market. The mother lode of human development called energy went dry. The country had forgotten to pay the piper. The piper marched away, playing his kW run flute, and all the enterprise geniuses followed him. Businesses closed down one after the other. Unemployment raised its ugly head.

What is the piper’s lesson? I asked him. He said:

“Free enterprises and free markets are good. Set them free, and you will prosper. But don’t forget what the enlightened father of capitalism, Adam Smith, said of the Invisible Hand of the Market that guides each individual to benefit the public interest by pursuing his own selfish goals: His goals are within his own lifetime. He agrees to contribute to prosperity if he witnesses his own gains soon: today, or this year, or maybe at most 5 years down the road. Adam Smith wrote this over two hundred years ago. Since then, stock options were invented and the time perspective ruling managers today is the next quarterly, not beyond… And these managers are telling their children to study law and accounting, not engineering: they see where the money is going when the next quarterly becomes the thin line on the horizon and when Profit and Competitiveness become synonymous in their minds. Energy capacity is a 30-year investment. So are the basic industries that need cheap, abundant energy. These are investments for our children, our future as a community, a people, a civilization. They can be managed by market guidelines, but they must be incited by political will. And that political will must sell a clear vision to the people: let’s show we can invent our future, so that our own children will naturally learn to invent theirs one day; instead of waiting for the geniuses of the market to come and decide our own future by sending us to the unemployment agency when it is thirty years too late to react.”

Aluminum is made with excess energy, not with energy. This is why the Investment Decision Cycle is slow and uncertain.

2005-09-10T13:35:00.000-04:00

The only industry I know living within the same paradigm is the Cheese Industry: You can say that cheese is made with excess milk, not with milk.

I have been trying to forecast investments in primary aluminum smelting since the mid-eighties. It is very frustrating. If you have been reading The ENAL Newsletter for a sufficient time, you can understand why. Names such as Coega, Aldoga, Atlantsal, Alcoven, Bintulu, Friguia, and Trinidad evoke many greenfield projects which have been coming and going in various press releases, sometimes for decades, and nothing to show yet.

A primary aluminum smelter of course is a huge investment. Such investments take careful planning, require Bankable Feasibility and Environment Impact studies, and raise all kinds of political and macro-economic objections, which all takes time. But that doesn’t make it unpredictable.

On top of that, its payback is far in the future. Consider that it is planned to last 30 years, will be charged heavy depreciation costs for ten years, will be profitable the following ten years, and will constitute a fantastic cash cow afterwards if nothing changes in its economic and political environment. And meanwhile, there will be many ways to extent its life span: revamping, extensions, casthouse investments to move downstream in Value Added Products, etc. Therefore uncertainties that can affect the date of payback weigh a lot within reasons to delay any project.

Then there is the effect of competing, alternative investments. A rule of thumb says that the extension of an existing smelter costs, per tpy, half what costs a greenfield. So, many greenfields are delayed in favor of more favorable extensions. This is why we still have only two huge smelters in the Middle East, which keep adding capacity.

But there is much more than that.

A huge cause of uncertainty in giving birth to a greenfield is that primary aluminum corporations - even the major ones - are not familiar with the intricacies of the energy market.

This market is dominated by utilities, often state-owned or state-regulated, pursuing goals which aren't only for profit but take into account political and macro-economic conditions as well. These political conditions are influenced by prejudices and misperceptions of the Media, the politicians, and public opinion. And, for an energy supplier, an aluminum smelter represents a near impossible decision: how can it commit such a huge amount of power (typically 1,000 to 1,500 MW, on a 24/7 basis, the equivalent of a full-sized power plant) for such a long time (contracts are flexible, but a greenfield needs predictable and favorable energy rates for at least ten years), when the local economy needs and will continue to need energy in so many other sectors, and always at higher rates?

Things are different in a country with huge energy reserves and little population like Mozambique, Iceland or Bahrain, or like Quebec and Venezuela in the 70's. When any country wants to develop such reserves, the utility loves the aluminum smelter, which represents an immediate captive market requesting a constant power load. But not forever; and, besides, there are less and less such countries.

This is why, to improve our forecasts, we look at the energy market in the country where the smelter is envisioned. (After all, we call our Newsletter the ENergy and ALuminum Newsletter!) Here is what we have learned:

Any decision to invest in smelting capacity is conditioned solely by the energy factor, as long as the project is on the sea. With access to the sea, the project sill procure alumina and carbon products at world prices, taxed with a very modest shipping cost. When it's worth around $300-400/tonne, any commodity is cheap enough to ship by sea. Labor cost is not a factor: it is marginal compared to total costs. Therefore the most complex viability studies and the most difficult negotiations will be the ones addressing the energy angle.

It is extremely difficult to find a utility interested in a long-term commitment, say 10 years, for a fixed load power supply in the range of 15-20 mills ($15-20/MegaWatt-hour). It's difficult even with the promise of a flexible rate, for instance indexed on the LME price (which used to be popular). Energy markets are simply too attractive (high prices, demand growth…) and will remain so in the foreseeable future. You only find a utility willing to commit to such a contract in the situation of huge excess energy. A good recent example is Mozambique.

If the utility faces such a situation, most often it means that some political will has decided on a long-term capacity investment, planning for demand to be boosted that way and for industrial development to follow.

Difficulties are even worse when the world economy is doing well, as is the case now: good economies boost short-term energy demand. The good times for excess energy are the major economic crises and reconstruction eras, which trigger mega-projects to prime the economy. (Remember 1929-32 in the US, the Tennessee Valley Authority, Bonneville Power and the Boulder Dam? Or 1945-60 in France: Genissiat, Roseland, Donzere-Mondragon and the birth of the nuclear program?)

Now, one difficult aspect in energy generation is environment. Not that the industry is polluting anymore, but it is perceived as such, and as ugly in the landscape on top of that. Therefore decisions either to invest in new capacity or to allocate resources to dedicated industries (such as primary aluminum) combine conflicts of interest in both economy and ecology contexts.

Therefore any smelter project you are reading about now, such as those projects which seems eternally delayed (Coega, Aldoga, Trinidad…), is in fact waiting for a local commitment regarding a long-term, unappetizing energy contract. And the Alcoa’s and Alcan’s are permanently conducting several negotiations of the kind: “If you don’t like me anymore in Quebec, I’ll go to Trinidad. Since you don’t like me enough in Trinidad, I am first going to Iceland. If you are not nice with me in South Africa, I’ll go to Oman.” Etc.

At the end of the cycle, when the moment comes to shut down the smelter completing its obsolescence cycle, the story is the same. The local government wants to keep the smelter alive because by now it represents lots of jobs. So sweeteners are granted to delay the shutdown. The incentives may then trigger other investments, short-term this time, to make the best out of the few years left, or perhaps for a conversion. Kitimat, Alcan’s Soderberg in British Columbia, is investing… Hirakud is using Chinese help to convert an antique HS Soderberg to low-Amp prebake. Etc.

Is this a healthy situation? Not at all! We’ll review that some other time. But meanwhile, that’s the way the cookie crumbles, and you have to cope with it. Let’s see how.

Your goal, in analyzing your market, is to always minimize your sales cost. Visiting a smelter for a sales presentation is costly.

You should list, out of ENAL's CIF Model, the smelters who will plan investments in which your products fit. These fall in several classes:

Greenfields: remember that, if you are a new or little-known supplier, you must focus on the greenfields with whom you have credible references. Of course the best references most are in a smelter owned by the greenfield’s main investor, or in a smelter using the same smelting technology as will be used in the greenfield. You should open talks with the Heads of Engineering of the main investor, so that you are already on the list of known suppliers when their EPCM will be appointed and will start working on a short list of suppliers.

Extensions: The same applies, but you are in competition with existing suppliers who already supplied the existing plant. You must use your references to emphasize what you offer that they don’t. Remember, when in direct competition, the 8 basic questions we discussed in our previous article:

Can you sell them something that would:

Increase yield on energy, in other words Faraday?
Eliminate troublesome incidents that interfere with potline operations and directly affect production?
Reduce raw materials cost?
Reduce costs of energy other than electrical, notably fuels, compressed air?
Reduce polluting effects?
Recover metal or raw material from waste, rejects?
Allow the smelter to enter into Value Added Semi-Products?
Save on spare parts consumption and cost?

Revampings: For a new supplier, these are the most interesting because you can actually be the one who suggests it when you have a clear cut advantage which would allow a quick payback. So the same 8 basic questions apply, plus sometimes a 9^th one: Can you help reduce labor costs? They are a small factor in most smelters, except antiquated ones where labor costs used to be low but are increasing. Also many revampings take place in an older smelter which is delaying a shutdown and looking for quick-fix solutions. If you can fix it and have good references, chances are the decision will be quick and the results as well.

Use the CIF Model to pinpoint all smelters and projects falling in these categories within the next five years, plus older smelters more or less threatened by energy costs but not to the point of contemplating a shutdown. To find them, read their story in recent years using ENAL Archives which go back to 1998, notably looking for information on date of expiration of their energy contract and on nature of related negotiations. And use our Contact Information service to get the list of decision-makers.

Then, you can engage discussion with the smelter’s management, introduce yourself, what you offer and your key references by email and phone. The feedback will tell you when the right moment to pay a visit is.

Then, it’s all up to you… unless you want to retain me to facilitate the process and the first sales efforts.

Good luck!

Dr. André Teissier-duCros

Selling Smelter Equipment : Know When to Sell, and to Whom

2005-04-18T06:47:00.000-04:00

This is the second in a series of articles on the aluminum smelter market and how to approach it. Other coming articles will address:

Why the investment decision cycle lasts so long.

Understanding the spare parts market: why your most effective competitor is local.

The key periods in a smelter life when major investments must take place.

The consequences and cost of delays in equipment delivery and start-up.

The four phases in the life of a smelter: know them to take advantage of them.

Managing market share to reduce business risks.

An aluminum smelter decides to buy your equipment. Who made the investment decision? Who prescribes the technical decisions? How to sell, when, and to whom.

This is the second of a series of articles on the Smelter Equipment Market by Dr. Andre Teissier-duCros.

You design, manufacture and sell some kind of equipment, component, or system used in primary aluminum. I am sure your product is a good one. I suppose you have several references. (If you don’t, wait for my editorial "Innovating in Smelter Equipment," coming in October of 2005.)

You certainly know by now that there are some 250 smelters in the world; that they are always far away from your plant (except perhaps one or two), in a far away country; and, in that country, far away from any major city or airport, in a deep valley, on a coastline, or on a waterway. Let’s talk about one: The 30 year-old Koonihan smelter located in the middle of the Republic of Nowhereland.

In that smelter, there is life. Several hundred or thousand employees live there, each with a family. The show must go on: the production cycle never stops. Machines are maintained; spare parts are changed; procedures, jigs and tools are improved. Internal meetings take place to discuss small and large investments, to speculate whether “they” will or won’t renew the energy contract, and the consequences; to dream about adding a new pot line or integrating anode production; to calculate how fast a major revamping – say, a bigger anode – would pay for itself. And sometimes, a supplier such as yourself is visiting, to discuss if what he sells fits in any of these plans.

Meanwhile, you came from far away. The trip is costly and time consuming. Maybe you are tired with jetlag. Maybe you worry that your boss is wondering right now if this expense was worthwhile. You told him: “It’s been three years since we visited them last. They must know what we offer now. They use the same Kaiser cell as two of our best references. I have to visit our customer in Sheduhook smelter which is only 700 miles away…” Boss said OK. Now that you are here, let’s try to learn something about Koonihan. So, who should you meet?

There always is a Plant Manager who runs the whole operation. Now watch out: what does the operation consist of? The casthouse, for instance, may be owned by a different company or be a joint venture. This means a different management. Do they have a carbon plant or do they import anodes? They have their own plant. Since the origin? No, they used to import anodes, they added a carbon plant when they built the 2^nd pot line 15 years ago. Was the Plant Manager already here at the time? Yes, he can tell the story. Good to know. Note that the Plant Manager must know who you are, and right now he may not if he has been here more than 15 years and he's never worked in another smelter. You see him as actor in the decision to buy your product. He lives his smelter every day, knows where they make money, where he has problems, where he should invest if “they” would let him, how fast rising energy costs are going to hurt, and he wonders where you might fit. So do you.

Ask him about history of the casthouse: initially they were shipping billets and T bars. Then came from the top a joint venture project with Worldwheels, Inc. to cast aluminum wheels. “They do their own alloy compounding but we do the metal treatment.” Any plans to go into other value added semis? Yes, but all depends on future terms of energy contract. This tells you of a context: they used to have cheap energy, but that's not the case anymore.

There generally is a Maintenance Manager who focuses on keeping operations trouble free while spending the least. Always try to meet him. Where does he see problems? What would he like to do if he had the money? He also shares in investment decisions. Ask him to visit the plant with him and encourage him to show you where he has concerns. Ask his opinion on their other suppliers. On the way, try to introduce yourself to the various superintendents. Try as quickly as possible to form your own diagnostics on their situation, and on what you can offer.

There should always be a Procurement Manager, unless purchasing for major equipment is centralized. In any case it is time to learn their procedure to get a Purchase Order approved. See how they qualify a supplier if you aren’t yet on their short list. You might hear then about a Head of Engineering. He is the one who makes technical decisions and who is supposed to best understand what your product could do for them. His colleagues expect him to know suppliers, processes, and technologies; and they expect him to ask you the tough questions about specifications and performance. In a sophisticated operation you might run into specialists covering anode, process control, feeding process, metal treatment… One of them must become your correspondent and understand why your product should interest them.

Finally, if they already plan for a major investment – say, a complete pot line revamping – you will meet a Project Manager. The smelter may have retained an Engineering Contractor to mastermind the project, which has his own Project Manager too. If this is the case, I hope this is not your first visit because, at that stage, suppliers are already selected. You should have been here a year ago to get qualified, and perhaps two years ago to generate their interest and “cook the specs” with them.

Now that you know them all, how are you going to answer your questions? This is where your own diagnostics comes in the picture. You can follow a check list looking like this:

Can I sell them something that will have a one year payback because it would:

Increase yield on energy, in other words Faraday efficiency? Watch out: Do you have a serious reference that can testify that it works, and can you explain their engineers how it will work? You can trigger their interest if your technical presentation is rock solid.
Reduce labor costs? Not very interesting. Labor costs are a small fraction, and they will prefer more throughput with same labor. This brings us back to 1.
Reduce raw materials cost: alumina, cryolite or bath constituents, carbon products? That is very attractive if you have credible references.
Reduce costs of energy other than electrical, notably fuel for baking oven, compressed air? Same as 3.
Eliminate troublesome incidents that interfere with potline operations and directly affect production? This again falls under 1. References are essential.
Reduce polluting effects? This sells only if the smelter is compelled to comply with new standards, unless what you propose also reduces incidents as in 5: Anode effects for instance. Note that often improving Faraday and reducing emissions go hand in hand.
Recover metal or raw material from waste, rejects? Dross recovery is a classical example.
Save on spare parts consumption and cost? There are some functions for which spare parts need periodic replacements (seals, valves, wear and tear elements). It is very difficult to replace another supplier simply on a cost argument, except for some specific reason the present supplier causes problems. You must also explain why you will offer something more. For instance, your component can replace the competitor’s and provide an advantage bringing you back to 1, 3 or 4.
Allow them to enter into Value Added semi-products. This is the largest and most diversified avenue. All smelters are pushed by rising energy costs into extending their casthouse to produce coils, foils, profiles, plates, even industry-specific castings such as wheels, etc. One can expect that 2^nd transformation smelters will move closer and closer to smelters for the same reason: work directly from molten metal and eliminate energy losses due to cooling and reheating. Such diversifications may affect Metal Treatment processes, where you may bring a specialty: filtration, degasification, etc. Note that you will raise interest if the smelter plans such a move. Again you must be informed ahead of time.

Note that in each case, you must be informed way ahead of time of smelter’s plans and be in regular contact to make suggestions. As a rule, your sales team should be prepared to touch base with a key contact in each smelter once a year at least, and pay a visit at least once every three years. This means 250 contacts by phone once a year, or one per day; and 80 visits on site per year, or almost 2 per week. This is difficult to maintain, which is why most suppliers are satisfied with a limited market: North America; China; Latin America; Greater Europe… But by doing so, you lose the advantages of market share, which I will develop in another paper.

So what can you do? Ask ENAL to do the legwork. We are equipped to constantly update our general Aluminum Industry Database and our Smelter Database with all contact information, and to manage phone follow-ups for several clients at a time. If you are interested, click here (info@enalnewsletter.com) to make an appointment for a phone interview.

Benefits of Modified Lithium Baths for Smelters

2005-02-09T12:51:00.000-05:00

More and more smelters are using modified Lithium Bath to reduce temperature, increase conductivity, and increase throughput while reducing emissions. The setback is the need for Lithium removal. It opens a new equipment market, and hopes for older smelters.

By Helge O. Forberg

In the 1950’s, smelters in the old Soviet Union were probably the first ones to use modified lithium bath on a wide scale. It is well known since then that modified lithium bath, with a lithium fluoride content of 2-4 % LiF and an aluminum fluoride content of 4-8 % AlF3, allows a higher electrical bath conductivity, therefore a lower bath temperature, more metal throughput, lower fluoride emissions and lower cash cost. This is why today, approximately 20% of all smelters are using lithium modified bath. Their number will keep growing, even more that the deregulation of energy markets will create more incentive to cut costs while keeping investments low.

Many world leaders use lithium bath today

Reynolds Metals (now Alcoa) was the first aluminum company in the West to have all their smelters converted to lithium modified bath by 1972. VAW (now Hydro Aluminium) was another early user. Today, lithium bath users include Alcoa, Alcan, Pechiney (now Alcan), Century Aluminum, PPH Billiton, RUSAL, Hydro Aluminium and VENALUM. Their smelters are located in Canada, USA, Russia, Germany, France, Greece, Venezuela and Brazil. Most of these are older smelters, but a few are newer ones.

If bath temperature goes down by 5°C, Faraday Efficiency goes up 1%; and most users observe a drop of 12 to 18°C… and fluoride emissions reduced by at least 40%.

Compared to the standard bath used in many smelters, lithium modified bath has a lower melting point and a higher electrical conductivity. As a result, pots on lithium bath can operate on 12-18 degrees C lower bath temperature than pots operating on the standard bath. This will increase the current efficiency: For each 5 degree C reduction the current efficiency increases by 1 %. In addition, the lithium bath has a lower vapor pressure, resulting in a 40-50 % lower pot room fluoride emission. Due to the higher electrical conductivity of the lithium bath the pots can either operate with a higher anode-cathode distance at the same line current - or operate at a higher line current, resulting in increased production and reduced costs.

The net result is that the lithium bath improves a smelter’s competitiveness and extends its economic life. Major benefits can be summarized as:

Operating bath temperature reduced by 12 to 18 degree C
Current efficiency increased by 1.5 to 3%
Specific power consumption decreased by 2.3 to 4 %
Net carbon consumption decreased by 1 to 2 %
Fluoride emission decreased by 40 to 50%
Reduced aluminum fluoride consumption
Improved pot stability and less “noise” or amplitude in the momentary variations in pot resistance
Increased production through a combination of improved current efficiency and increased line current

But traces of lithium end up in the pot metal…

Traces of the lithium in the bath will end up in the pot metal. Thus, for a bath containing 3% LiF one can expect 24 parts per million (ppm) lithium in the pot metal. During and after tapping the lithium and sodium in the molten aluminum will burn off. By the time the crucible has reached the cast house, the lithium concentration has most likely been reduced to 8-10 ppm.

A number of value-added aluminum products require less than 2 ppm lithium. The market specification for aluminum going into higher priced products is 1 ppm lithium maximum. Unless the market specification for lithium can be met when the aluminum is in the furnace and ready for casting, the aluminum has to be diverted into lower grade products that will carry lower or no premium. The metal premium and the ability to produce value added products are playing an increasingly important role in the overall smelter economics. This is therefore the reason for many smelters being reluctant to convert to lithium modified bath.

Up till now a number of lithium removal methods have been used. Two well known metal treatment systems for lithium removal are TAC (proposed by STAS in Canada) and HYCAST (developed by Hydro Aluminium). With the TAC system, lithium can be reduced to about 4 ppm. The HYCAST system is somewhat more efficient and can within a reasonable time reduce the lithium to 2 - 3 ppm. However, HYCAST has been taken off the market as Hydro decided to use it exclusively in its own plants. The other systems are less efficient.

Soon, a new system for Lithium removal in molten aluminum

A new system has been developed for the removal of lithium in molten aluminum. The method has been patented by Helge Forberg & Nolan Richards and the equipment will soone be in the catalogue of a reputable Smelter Equipment Supplier. The removal of lithium is accomplished fast and economically by chemical reactions through a combination of mechanical and chemical agitations. The removal is carried out in a three-ton transfer crucible at a metal treatment station built in the cast house. After the completion of the treatment the metal is transferred into the cast house furnace and another crucible would be ready for treatment. The turn-around time at the treatment center is approximately 15 minutes. The objective of the treatment is to meet the aluminum market specification so the aluminum produced in a smelter using lithium modified bath can be sold at a premium and used in valued products.

Improved smelter economics

With the availability of a fast and economic method for removing lithium from molten aluminum, smelters on lithium bath can now obtain a premium for their metal and have the capability to produce value added products. These smelters do not have to divert a portion of their production into lower grade products any more.

As a result, the economics of smelters on lithium modified bath has improved significantly. The molten aluminum cost has always been lower in smelters using lithium bath. However, this cost advantage was often lost due to the handicap of not being able to meet the aluminum market specification of 1 ppm lithium maximum. This barrier has now been removed. Due to the overall smelter economics involved and the competitive advantage of lithium bath, it is expected that more smelters will be converting.

Helge O. Forberg

Selling machinery to primary smelters, compared to other industries, is what whale hunting is to trawler fishing

2005-01-14T10:58:00.000-05:00

This is the first of a series of articles on the aluminum smelter market and how to approach it. Other coming articles will address:

Who makes the investment decision? Who prescribes it?

Why the investment decision cycle lasts so long.

Understanding the spare parts market: why your most effective competitor is local.

The key periods in a smelter life when major investments must take place.

The consequences and cost of delays in equipment delivery and start-up.

The four phases in the life of a smelter: know them to take advantage of them.

Managing market share to reduce business risks.

Some little-known factors favoring customized equipment – smelters planning various revamping in 2006-09...

This is the first of a series of articles on the Smelter Equipment Market by Dr. Andre Teissier-duCros.

The world’s primary aluminum smelters number around 250, which is remarkably concentrated compared with other machinery markets. For instance, the largest wire & cable production plants totaling 80% of world capacity add up to 4,000 facilities. These 250 smelters represent an annual equipment market of some $1 to 1.5 billion, which means that the average smelter procures some $6 million worth of various machinery, equipment, systems and components each year. Yet several years may pass between two significant investments. A few hundred machinery vendors regularly address aluminum smelters, out of which maybe 25 can be considered as specialized in primary aluminum equipment. As one can imagine, they all know each other well.

What a smelter will buy is often customized to that very smelter’s needs. Yet all smelters look very much alike, falling in three basic families: Prebaked Anodes (PBA), with side by side pots; PBA, with end to end pots; and Søderberg’s, always with end to end pots. They always consist in a potroom and a casthouse, plus often an anode plant.

Why would a smelter, within a family, need a customized equipment rather than some off-the-shelf standard machine? An obvious reason is that smelters were designed at very different periods applying different basic technologies, and that even the most similar ones are not exactly alike, even within one “class” of technology (such as Pechiney AP18, or Kaiser P69).

A little known factor which always influences the investment decision is what, at a given moment, makes a smelter more or less profitable. Seen from an operating cost point of view, even two identical smelters, built at different times in different countries, face a different blend of cost ingredients, between energy rates, CIF costs of alumina, carbon products and other raw materials, labor costs, and financial charges; and the trend affecting each cost ingredient is different. On top of that, stockholders’ priorities may be different: grow capacity, maximize profits, prioritize second transformation, etc. And throughout the smelter’s active life (50 to 100 years), these trends and priorities will mean an evolution through major or minor investments and revamping which will increase differentiation. It can show through bigger anodes; different scrubbing technique to favor higher metal purity; accent on Faraday efficiency if energy supply is limited; accent on automation or outsourcing if labor costs are high; special devices to save on compressed air; more attention on eliminating anode effects; on facilitating preventive maintenance to reduce labor qualification; etc.

The competent equipment supplier is quick at understanding these differences and proposing the very investment that answers the next priority at the minimal cost. But even a very qualified supplier will have problems assessing such opportunities, because at any moment the smelter management is confronted with conflicting priorities and is reluctant to disclose all parameters affecting the decision: What makes a smelter competitive often results of a proprietary combination of procedures, of settings and of exact nature of equipment, the whole being acquired through a very costly experience. The supplier must know how to gain confidence, and be prepared to respect confidentiality rules and often agreements once he has gained the customer’s trust.

Be always prepared to demonstrate a return on investment through cost savings or added value. In the coming years, the most immediate priorities are in maximizing metal recovery.

(Subscribers: Click here to read the conclusion of this article, which outlines the priorities facing existing smelters who will invest in major and minor revamping during 2006-09, and nature of equipment they will consider.)