New York 06/10/2016 - AMM - Kirk Maltais
Arg International AG’s purchase of Noranda Aluminum Holding Corp’s New Madrid, Missouri-based smelter is likely a speculative move that could pay off if aluminium prices on the London Metal Exchange surge, market sources told Metal Bulletin sister title AMM.
Zug, Switzerland-based Arg, formed by former Glencore Plc aluminium traders Matt Lucke and Zach Mayer in 2013, bought the New Madrid smelter late last month for $13.7 million. The smelter was closed by bankrupt Noranda in March and has an annual nameplate capacity of 263,000 tonnes of primary aluminium.
“My hunch is that it is a pure speculative play. Glencore has done this before,” one supplier source said. “They did the same for Columbia Falls [in Montana]; they bought it, sat on it and then idled it.”
Glencore International AG purchased Columbia Falls Aluminum Co LLC in 1999 and began cutting output before finally curtailing all production in late-2009. Demolition of the smelter commenced in 2015 and its equipment was put up for auction.
Arg likely also investigated the value of scrapping the smelter before buying it, with multiple sources confirming to AMM that they received a request for a quote on about 15 million lbs of aluminium bus bar coming from the New Madrid area. This material, believed to be sourced from the smelter if it were scrapped, could be worth some $12 million to $13 million.
“Someone was doing some homework,” a second supplier said, noting that while demolition work and environmental remediation of the plant site would be costly, the value of the land and scrap would offset that.
However, the real goal is to position Arg to profit if LME prices surge by quickly restarting the smelter once aluminium prices pass the $2,200-per-tonne (99.8-cent-per-lb) mark, sources said, indicating this could be a possibility if US regulators apply more pressure to Chinese suppliers.
Aluminium suppliers are pressing US regulators to file a case at the World Trade Organization to combat alleged Chinese subsidies and overcapacity. Should regulators move forward with such a case, the resulting squeeze in Chinese supply could provide the price boost Arg needs to bring the smelter back online.
The LME's three-month aluminium contract closed the official session at $1,669 per tonne (75.7 cents per lb) on October 5, 1.9% shy of this year's high of $1,700.50 per tonne (77.1 cents per lb) in mid-August.
But market participants do not expect the smelter to come back online in the immediate future. “I don’t think they’re going to restart. Only a fool would do that, and Arg are not fools,” the second supplier said.
Arg declined to comment on the acquisition.
Franklin, Tennessee-based Noranda, prior to filing for Chapter 11 bankruptcy protection in February, was forced to curtail production at the smelter due to equipment troubles and low LME prices.