Soaring aluminium raises prospect of magnesium substitution: MIL

London (Platts)--17May2006

The narrowing price gap between aluminium and magnesium as aluminium
prices hit multi-year highs is set to encourage substitution of magnesium for
aluminium in some automotive applications, Pat Elliott, chairman and managing
director of Australia's Magnesium International, said Wednesday.
"Magnesium is now very price competitive compared with aluminium,"
Elliott said in his address to the company's general meeting, the text of
which was issued as a statement by the company.
"The price relative to aluminium will now encourage substitution as soon
as engineering and designs allow. With aluminium prices above $1.00/lb,
magnesium alloys at $1.25/lb are very cost-competitive in many applications,"
he added.
The official cash aluminium settlement price on the London Metal Exchange
was $2,960/mt ($1.34/lb) on Tuesday.
"When the magnesium price is 1.55 times the aluminium price, the user
gets the same weight of an alloy where the processing costs are lower and
design flexibility [is] much higher," Elliott said.
The current ratio between the two prices is "exceptional value," Elliott
said, adding: "Either the magnesium alloy prices will go up, aluminium will go
down and/or magnesium will substitute aluminium in many applications--or a bit
of all three--each of which works well for MIL."
MIL is developing a magnesium smelter project in Egypt through its
subsidiary, Egyptian Magnesium.
Elliott said the company expects to finalize a capital cost estimate for
the project in the next few weeks, adding: "So far, it is fair to say that the
preliminary numbers that have come through have been encouraging."
Late last year MIL said that the proposed 88,000mt/year primary smelter
at Port Sokhna would be delayed by a much higher cost estimate than an
internal feasibility study had predicted, and subsequently decided to focus on
building only the 43,000 mt/year first module.
"This size and stepped approach is more easily financed and reduces the
risk that we create an oversupply situation," Elliott said Wednesday. "The
incremental expansion capital costs of less than $4,000/mt of annual capacity
and marginal operating costs of less than 50 cents/lb will be almost
impossible for anyone to beat."
Elliott said MIL had been granted all the necessary environmental
approvals for the project, adding that the company was currently finalizing
power and gas supply contracts, the terms of the land lease at its designated
site in Port Sokhna and the supply terms for process water for the project.
The next step is to complete further engineering design and costing work,
a process likely to take around six months, Elliott said. As for financing,
"we are developing plans to attract regional funds, local parties (including
government) as well as traditional project finance sources," he said, adding
that the company was also actively seeking strategic investors "who will add
to our project delivery skills."
The current program will require MIL to raise additional equity prior to
financial close, Elliott added.

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