BHP Billiton has announced that it will merge its aluminium division with its stainless steel materials division, to form a new larger entity within the group.
According to the BHPB website, “… individually, Aluminium and Nickel are small divisions relative to the other businesses in BHP Billiton. The combination of these into a single business unit will provide appropriate scale within the BHP Billiton portfolio, as well as simplifying the functional structure of the business to assist in our efforts to make it a more efficient and competitive organisation.”
In some senses this is a backward move for the aluminium assets. Smelters in Mozambique and South Africa now have to compete with nickel projects for capital, even before the RFA gets past the division heads and on to the corporate board of directors. And two small divisions being merged still don’t make for a big enough voice, compared to the heavy weights in the BHPB portfolio.
It’s part of a general long-term shift in the aluminium industry. We will be talking more about this in our upcoming “Cash Cost Curve” Report (due out very soon), but if you look at who were the big players in aluminium at the turn of this century, you would find (surprise, surprise) aluminium companies. Alcoa, Rusal, Pechiney, Comalco, Chalco – all these companies were focused only on aluminium. So when the boards of directors were planning capital strategies, it was about how to maximise shareholder returns in aluminium.
Now we have Resources companies like Rio Tinto and BHPB controlling portions of the industry, and aluminium companies like Chalco now branching away from the light metal. Chalco is now active in coal, copper, and rare earths. Rio Tinto assesses its aluminium interests in the light of its iron ore and coal and other materials, as does BHPB, and with the poor returns on aluminium in the 12 years since the turn of the century, it’s no surprise that these boards relegate aluminium into a second tier of assets.
Of the heavyweights, only Alcoa and to a lesser extent Hindalco/Novelis have made diversification decisions within the industry, and stayed true to their original purpose.
Watch for more on our CCC report very soon.