Longview aluminum cuts already in price -analysts
By Andy Blamey
LONDON, Feb 28 (Reuters) - The possibility of further output cuts at the Longview aluminum smelter in the U.S. following its purchase by Michigan Avenue Partners is already largely factored in to the aluminum market, analysts said on Wednesday.
Michigan Avenue and former owner Alcoa (NYSE:AA - news) announced on Tuesday the sale had been completed for an undisclosed sum. Earlier this month Alcoa cut 70,000 tonnes of output at the 204,000-tonne capacity Washington state plant; the new owner is expected to reveal its plans later this week.
``We'll probably see a knee-jerk $20/30 uptick if they close a substantial amount of production or the entire plant...,'' said Standard Bank London analyst Robin Bhar.
Market speculation has targeted Longview as the prime candidate in the U.S. Pacific Northwest for further cuts. So far, five aluminum producers in the region have curtailed over a million tonnes of annual capacity in the face of soaring power prices.
But a combination of well-established expectations of a cut and the current market focus on macroeconomic trends may mitigate the impact of any further reduction at Longview, some analysts said.
``What we've seen over the past several months is that these moves are factored into the price well before they are announced, so when the announcement finally comes the reaction is rather muted,'' said Angus MacMillan at UK-based consultancy Brook Hunt.
DEMAND SEEN MORE IMPORTANT THAN SUPPLY
Michigan Avenue was expected to keep at least a portion of the plant's capacity in operation in order to support its production of high-purity aluminum for the aerospace industry.
``The market view has always been that they would close 60 percent of capacity and leave around 40 percent operating, so we could be looking at another 50,000 tonnes of cuts,'' said Bhar.
``I suppose they could shut a further part of the plant, but I would be surprised if they cut it below 50 percent,'' said MacMillan.
While production cuts are seen as supporting aluminum prices on the downside, the economic slowdown in North America remains the main driving factor in the market, analysts said.
``From a trade perspective the market is quite subdued at the moment. What's governing prices at the moment is the funds, and they're more interested in U.S. economic data than in the fundamental aspects of the market,'' said Barclays Capital analyst Howard Patten.
``The bottom line is, what does it matter if these guys cut back if demand isn't there?'' said Bhar.
``At some point people will focus again on the supply side but at the moment it's all demand, demand, demand.''
Alcoa was ordered by European regulators to divest a 25 percent stake in the Longview plant last year as a condition of its purchase of fellow U.S. producer Reynolds Metals, and later agreed to sell its entire holding in the smelter.
Michigan Avenue is a Chicago-based investment group whose affiliates include McCook Metals, Scottsboro Aluminum, Great Lakes Metals and Great Lakes Processing.