Selling machinery to primary smelters, compared to other industries, is what whale hunting is to trawler fishing

This is the first of a series of articles on the aluminum smelter market and how to approach it. Other coming articles will address:

Who makes the investment decision? Who prescribes it?

Why the investment decision cycle lasts so long.

Understanding the spare parts market: why your most effective competitor is local.

The key periods in a smelter life when major investments must take place.

The consequences and cost of delays in equipment delivery and start-up.

The four phases in the life of a smelter: know them to take advantage of them.

Managing market share to reduce business risks.

Some little-known factors favoring customized equipment – smelters planning various revamping in 2006-09...

This is the first of a series of articles on the Smelter Equipment Market by Dr. Andre Teissier-duCros.

The world’s primary aluminum smelters number around 250, which is remarkably concentrated compared with other machinery markets. For instance, the largest wire & cable production plants totaling 80% of world capacity add up to 4,000 facilities. These 250 smelters represent an annual equipment market of some $1 to 1.5 billion, which means that the average smelter procures some $6 million worth of various machinery, equipment, systems and components each year. Yet several years may pass between two significant investments. A few hundred machinery vendors regularly address aluminum smelters, out of which maybe 25 can be considered as specialized in primary aluminum equipment. As one can imagine, they all know each other well.

What a smelter will buy is often customized to that very smelter’s needs. Yet all smelters look very much alike, falling in three basic families: Prebaked Anodes (PBA), with side by side pots; PBA, with end to end pots; and Søderberg’s, always with end to end pots. They always consist in a potroom and a casthouse, plus often an anode plant.

Why would a smelter, within a family, need a customized equipment rather than some off-the-shelf standard machine? An obvious reason is that smelters were designed at very different periods applying different basic technologies, and that even the most similar ones are not exactly alike, even within one “class” of technology (such as Pechiney AP18, or Kaiser P69).

A little known factor which always influences the investment decision is what, at a given moment, makes a smelter more or less profitable. Seen from an operating cost point of view, even two identical smelters, built at different times in different countries, face a different blend of cost ingredients, between energy rates, CIF costs of alumina, carbon products and other raw materials, labor costs, and financial charges; and the trend affecting each cost ingredient is different. On top of that, stockholders’ priorities may be different: grow capacity, maximize profits, prioritize second transformation, etc. And throughout the smelter’s active life (50 to 100 years), these trends and priorities will mean an evolution through major or minor investments and revamping which will increase differentiation. It can show through bigger anodes; different scrubbing technique to favor higher metal purity; accent on Faraday efficiency if energy supply is limited; accent on automation or outsourcing if labor costs are high; special devices to save on compressed air; more attention on eliminating anode effects; on facilitating preventive maintenance to reduce labor qualification; etc.

The competent equipment supplier is quick at understanding these differences and proposing the very investment that answers the next priority at the minimal cost. But even a very qualified supplier will have problems assessing such opportunities, because at any moment the smelter management is confronted with conflicting priorities and is reluctant to disclose all parameters affecting the decision: What makes a smelter competitive often results of a proprietary combination of procedures, of settings and of exact nature of equipment, the whole being acquired through a very costly experience. The supplier must know how to gain confidence, and be prepared to respect confidentiality rules and often agreements once he has gained the customer’s trust.

Be always prepared to demonstrate a return on investment through cost savings or added value. In the coming years, the most immediate priorities are in maximizing metal recovery.

(Subscribers: Click here to read the conclusion of this article, which outlines the priorities facing existing smelters who will invest in major and minor revamping during 2006-09, and nature of equipment they will consider.)