Aluminum value chain
The aluminum industry has a value chain that consists of upstream and downstream companies. Upstream companies are engaged in mining and refining operations. This involves two steps. The first step involves extracting bauxite. The second step involves refining bauxite to alumina. The downstream operations involve smelting, casting, and fabricating the refined alumina. In this part of the series, we’ll discuss where Century Aluminum is placed in the value chain.
Century Aluminum lacks upstream operations
Century Aluminum doesn’t have access to mining assets. It sources its bauxite requirements from other mining companies. The chart above shows the basic raw materials involved in making aluminum. Electricity and carbon anodes are the other key raw materials in aluminum production—apart from bauxite. For electricity, it has entered into long-term contracts with local power companies. It has entered into contracts in the regions where it has production plants.
Having production plants in Iceland gives Century Aluminum access to many untapped hydroelectricity sources. Aluminum production is an energy-intensive process. Having access to cheap sources of electricity is a key driver for aluminum companies like Century Aluminum (CENX), Alcoa (AA), Kaiser Aluminum Corp. (KALU), and Constellium (CSTM).
Century Aluminum’s carbon anode facilities
The chart above shows the why carbon is important when making aluminum. Century Aluminum has carbon anode facilities in the Netherlands. It also has a 40% stake in Baise Haohai Carbon—situated in China. Both facilities supply anodes to Century’s Grundartangi smelter. In June 2012, Century Aluminum purchased the assets of an anode production facility. It was owned by the Zeeland Aluminum Company.
Over the longer term, Century Aluminum plans to get into upstream operations. Currently, it has to rely on third parties for most of its raw material requirements. After looking at Century’s various operational aspects, we’ll look at the financial metrics.
An alternate way to access the metal industry is through the SPDR S&P Metals and Mining ETF (XME).
When originally published the graph in this article mistakenly valued the electricity consumption per pound of aluminum at 13 kWh. We have since changed it to 8 kWh. We regret this error.