Aluminum and shaking up an oligopoly
We tend to treat the move to ever tighter oligopolies as a given on this site, and indeed that seems to be supported in most areas. Ina few however, there seems to be a de-oligopolization. In terms of global importance, companies like ExxonMobil, BP, and Shell seems to be receding in spite of the dramatic acquisitions of the last decade. That’s because the growing and assertive economic nationalism of oil-producing companies form Venezuela to Russia is loosening their hold on oil fields, and competition from China is eroding their importance. These companies are still a tight oligopoly in terms of US refining, but they are far less powerful in terms of the overall global oil system.
So too with aluminum, according to a Wall Street Journal story ("Aluminum's Power Shift", 9/11/06), The big two Alcoa and Alcan are getting more competition, as national aluminum industries gear up. We’ve already looked at one symptom, the recent acquisition of Sual Group by fellow Russian company when Rusal Ltd.
The key to the aluminum producing industry is the enormous power required to smelt the minerals from which it is derived (aluminum is second only to paper making in terms of power use). With increasing petroleum prices, countries with surplus energy are becoming big players. That includes Russia, where Rusal will now displace US-based Alcoa as the #1 producer in the world.
As the article puts it:
A new breed of aluminum makers, based in emerging economies and benefiting mainly from access to inexpensive electricity, are gearing up to challenge the supremacy of the industry's traditional giants, Alcoa Inc. and Alcan Inc.
Meanwhile, the industry us growing fast, with a doubling expected by 2002. Sohar Aluminum Co. in Oman ha s a major smelter under development, and Aluminium Bahrain is expanding an already major aluminum smelting plants. (This yet another instance of the Gulf Emirates investing their oil money in other industries in a strategic way.)
In addition, China and India are energy-poor countries comparatively, but their use of aluminum is growing. With companies are expanding their aluminum In China, aluminum companies are consolidating, and the country is tying up in the Aluminum Corporation of China (Chalco), founded in 2001, Chalco is also investing n plants in Vietnam and mines in Australia.
All this activity in aluminum threatens to make the carefully built oligopoly of Western aluminum companies to lose some of its power. Fight for mines, energy, and customers with these semi-government entities means that Alcoa and Alcan are being forced to rethink themselves, with plant closing in North America and new and expanded plants elsewhere. It’s an indication of the ability of true global competition to restructure the reigning oligopolies.
