Contents - AL-Tax

152 11 Global Trading of Commodities4. The supply sides of the alumina and aluminum markets (and certain other commoditiesmarkets) are more concentrated than previously, as a result of a numberof large mergers.11.1.4.1 Role of Hedge FundsHedge funds take speculative positions, and are sufficiently large to influence pricesdramatically. As a result of hedge funds’ comparatively recent movement into physicals,metals prices have increased by as much as 400% over the past several years.Prices are also much more volatile than previously, and are no longer driven by marketfundamentals. Moreover, while hedge fund money has driven a wedge betweenmarket fundamentals and pricing to a significant degree, it has also influenced marketfundamentals. High-cost mines that could not operate profitably in more stablemarkets, generally located in North America and Europe, are now able to producemetals profitably. The very high cost of certain metals (e.g., copper) has also motivatedend-users to substitute other materials, such as plastics, where feasible (e.g.,in plumbing applications).11.1.4.2 Diminished Importance of ChinaAs previously noted, China was the driving force behind the formerly buoyant aluminamarket for a number of years, and it exported significant volumes of aluminumas well. However, China has built up its alumina production capacity from 7 to8 million tons several years ago to upwards of 20 million tons currently, and itimports commensurately smaller volumes. Moreover, because aluminum productionis extremely energy-intensive, and China has been in the throes of a severe energyshortage for some time, it has also shifted from encouraging aluminum exportsthrough tax rebates to imposing a tax on such exports. Hence, traders have beenlooking elsewhere for alumina customers and aluminum suppliers, and cultivatingrelationships with producers in Asian countries other than China.11.1.4.3 Decline in Pre-payment OpportunitiesAs previously noted, in the latter part of the 1990s, metals trading firms wereable to secure favorable offtake arrangements with Russian aluminum producers inexchange for pre-payment loans, because the latter were cash-strapped and requiredworking capital. However, with metals and other commodities prices at record levels,producers no longer need such cash infusions.11.1.4.4 Consolidation in Alumina and Aluminum MarketsAs with many other industries, the alumina and aluminum markets have been consolidatingover the past decade, with the rate of consolidation recently accelerating.Alcan previously acquired Alusuisse and Pechiney, and was in turn acquired by RioTinto in 2007. Alcoa acquired Alumax, Inespal, Almix and Reynolds. RUSAL and