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" Smelters must be assured of power that is cost-effective

Intended or not, the closures have helped reverse the metal's price decline of the past year. How many more closures might be needed to turn the price is another matter.

Towards the end of last April, when hopes were rising that the recession might be licked, the spot price of a ton of aluminium was peaking at about $2760.

Just before Christmas, the metal was trading at little more than $1950. Now it's almost back to $2200. But that recovery has not prevented at least one big producer from hastening to reassure shareholders and customers that its smelters could continue to operate profitably when prices were as low as $1900.

Alcoa, the world's largest integrated aluminium company, and Norsk Hydro have been closing old and inefficient smelters in the US, Australia and Europe in response to weakening metal prices and rising power costs.

In round figures, electricity can make up 40% or more of a smelter's operating costs, much more in the case of plants like those closed by Alcoa and Norsk Hydro that were getting on for 50 years old. Those two companies' closures - and they are not the last - have already cut out some 1.3million annual tons of capacity, but any shortfall will not last long.

While the cost of closures helped push Alcoa into a fourth-quarter loss last year, within 12 months or so the company will fire up a new 740000 t/year smelter in Saudi Arabia where power costs are low.

Similarly, Norsk Hydro's half-owned 585000 t/year plant in Qatar will be at full capacity this entire year.

And this year global production of about 50 million tons is likely, while warehouse stockpiles - there are five million tons accounted for on the London Metals Exchange alone - are hardly likely to be dented.

Rio Tinto has said it was awaiting the "opportune moment" to sell a dozen smelters.

This activity highlights the fact that for smelters to stay open and compete in the aluminium market, they must be assured of cost-effective power, with prices guaranteed for decades.

That is certainly a subject when the tariffs Eskom charges for BHP Billiton's smelters in KwaZulu-Natal come up for discussion.

Last year, BHP Billiton's smelters operated at full capacity across the globe - which includes South Africa - implying that local operations were profitable.

Elsewhere the aluminium picture is far from clear.

Russian group Rusal, which has the capacity to produce 4.7million tons of metal a year, hit the skids in early 2009 when recession sent aluminium prices skidding to $1300 from peaks of $3300 in mid-2008.

Rusal had to restructure massive debt and recently won a covenant holiday from its creditors, meaning it avoids the risk of automatic default if revenues drop.

Rusal is reportedly telling all and sundry that it can cope with a price drop to $1900. Rusal has not said that any smelter would be closed or even mothballed.

Nor have Chinese producers, who churn out just less than 1.5million ton s of aluminium a month, from many inefficient and power-greedy smelters.

Can the metal's price move further ahead? It might be difficult, with Alcoa itself forecasting little growth or even lower demand.

And China's demand growth is far from certain.