Table 3. Structure of Cost of Domestic Primary Aluminum and Projection Based on Prediction by Energy Information Administration 1996 Therefore, variances have been calculated according to 18,000mJ/tAl from natural gas in the Bayer Process and 1400 mJ/tAl from distillates for transportation. Natural gas is used to supplement the contained volatiles in making anode carbon. This was taken as 4850mJ/tAl. Natural gas was selected as the fuel-of-choice for energizing the holding melting furnaces for the conversion of the virgin Al to an exportable form from the cast house in the amount of 8100 mJ/tAl. (These assigned unit energies emerge from a proprietary life cycle analysis representative of the North American industry in which I participated.) Raw materials for anodes include green coke resid - a waste product from petroleum refineries. Inquiries reveal that the transfer price of this from oil companies to coke calciners (who invariably have to shop around or blend to maintain adequate quality of these feedstocks) is not linked to the price of oil. Therefore. no escalators have been applied to petroleum green coke cokes nor does coal tar pitch currently selling for $390/t, seem coupled to the price of coal. A point of leverage could be that petroleum pitch can make an anode of quality almost equal to that with coal tar pitch. From a quantitative aspect, the cost of pitch in anodes contributing to the production of It Al is currently about $40. Other "freights" in and out, in the category of "Overhead, freight and interest" were based at a nominal "$20 U.S. 1994" and adjusted proportionately for the appropriate price of distillate. Reviewing the data in Table 3 shows that the "energy sensitive components" of aluminum add up to 75% of the total cost in 1996 (power 30.4%; Al2O, 32.6, anodes 9%, cast house energy 1.7%, misc. freight 1.7%). However, the projections of U.S. Industrial Energy Prices made by the Energy Information Administration in their Annual Energy Outlook 1996, without escalators predict very flat prices, $1172-1177 ($1994) for domestic Al until 2010 with an increase of only 1.3% by 2015-a scenario which would make U.S. primary aluminum compared with the prevailing Midwest price of $1675, quite competitive. For strict accountability, a component for interest on capital, depreciation and return on capital, needs to be added to the operating costs for aluminum. The weighted average cost of producing primary Al in the non-socialist world in mid 1988 was $1166, but with the added component just identified, this increased to $1535.2 Extrapolating at comparable accounting prices, to all projections of operating cost detailed in this report, 30% of the production cost would have to be added to the "cost of the year" to judge the margins against the prevailing LME-Al price, e.g., for USA-Table 3, 1996, $1524 (1172+352) would be compared with LME at $1640 VAL. For OECD-Europe in 2005, Table 4 the increment would be $430 making the total cost $1872. Thus, adding $350 to the bases for 2000 in Table 4 (et suite) means the roughly $1500 in USA and $1720 in OECD-Europe leave the margins versus LME small to negligible. One fact is that the US capacity, being mature, probably has less depreciation than modern capacity. Production costs for the three regions according to fuel prices and escalators in Scenario 1, (Tables 1 and 4; "Appendix to Work Statement") are listed in Table 4. Largely due to the pricing of electricity, the ratios of USA - OECD-Europe - Japan are: These considerations and consequences of fuel adders, Tables 4 and 6, are based upon prorating the cost of electric power at 46% of the cost in 2000 plus adders. This, consistent with the scope of work, would be the normal basis for the contracts the aluminum industry negotiates for large blocks of power. Consequently, the advantages or margins of USA Aluminum with respect to the two other regions decrease markedly under this scheme. If the LME price were not to drop, however, both the U.S. and European primary aluminum industries would continue to operate, albeit with greatly diminished apparent profit. Much worse margins have been experienced, e.g., 1976, 1983, 1993, when Al was near $1100/tonne. The integrated loss of profit to the primary aluminum industry between 2000 and 2015 for both USA and OECD-Europe regions would be $12.5 billion according to Scenario One. |