(MENAFN - Arab News) It wasn't aluminum that finally did for Tom Albanese, who was forced to step down as chief executive of mining giant Rio Tinto earlier this month.
The trigger was the 3 billion write-down of the company's Mozambique coal ambitions just two years after it had splashed out 4.2 billion on the Riversdale assets.
But both chief executive and company had long been living under the long shadow of the 38-billion acquisition of the Alcan aluminum assets back in 2007.
Another 10-11 billion of write-downs against those assets brings the cumulative total to over 29 billion, marking it out as one of the most disastrous deals ever in the mining and metals sector.
And that's saying something, given the industry's long history of disastrous deals.
Rio Tinto blamed the latest impairment charges on "the further deterioration in aluminum market conditions in 2012," citing in particular "strong currencies in certain regions and high energy and raw material costs."
It's somehow fitting that the aluminum sword has fallen on Albanese just as the global industry is once again churning out record amounts of metal.
The latest figures from the International Aluminum Institute (IAI) show that global annualized production in December hit an all-time record of 45.55 million tons, up over 600,000 tons on the previous month's collective run-rate.
It's a problematic outcome for an industry experiencing a "further deterioration" in market conditions but this is the root conundrum facing producers of the light metal everywhere.
Things looked very different a year ago with industry leaders such as Alcoa announcing capacity closures and curtailments and smaller players throwing in the towel because of low prices.
Alcoa announced the permanent closure of 291,000 tons of capacity, albeit capacity that was already under mothballs. It and other Western producers also announced production cuts totaling around 1.2 million tons of annual capacity.
They duly delivered.
Between November 2011, when producers started to react to falling prices, and December 2012 annualized production in the world outside of China fell by 1.1 million tons to 24.8 million tons.
The next graphic, comparing annualized production in December with that a year earlier shows which regions took the biggest hits.
Output in the IAI's "Oceania" category, comprising Australia and New Zealand, slumped by 11 percent, largely reflecting the mothballing of Norsk Hydro's 180,000-ton per year Kurri Kurri smelter in New South Wales.
Rio has four smelters in the region, three in Australia and one in New Zealand. All have been shuffled into its recently-created "Pacific Aluminum" division, which carries a large "for sale" sign round its neck.
Western Europe took the brunt of the other capacity closures, unsurprisingly given the number of older, smaller smelters still operating in the region. Annualized output fell by 10 percent over the course of last year.
Most other regions saw marginal production declines with two exceptions, non-China Asia and the Gulf, both of which have attracted investment in newer, lower-cost capacity.
And what of China, both the world's largest producer and consumer of aluminum?
On paper, it should have slashed production rates last year, given the positioning of many of its smelters at the top end of the cost curve.
In reality, cost-curve economics count for nothing if governments are prepared to subsidize loss-making plants.
This is what happened both at local level, in the form of power subsidies, and at national level, in the form of "strategic" purchases by the State Reserves Bureau toward the end of the year.
Chinese production rose by 11 percent last year to 19.8 million tons, according to figures supplied to the IAI by the China Nonferrous Metals Industry Association.
Worth noting was the sharp acceleration in production over the last three months of 2012. By December national annualized output was running at 20.7 million tons, an all-time record and 17 percent higher than December 2011.
An element of end-of-year quota-filling may be at work here but the underlying driver of higher output is the build-out of capacity in China's north-western provinces, where operators have been attracted by stranded coal deposits.
Western experts may shake their heads about the industrial logic of locating production capacity so far away from consumers on the eastern seaboard, but in China it doesn't matter.
China views its aluminum smelter sector as strategic and commodity economics will be bent to keep it churning out as much metal as is needed.
This translates into higher production again this year, new lower-cost capacity largely supplementing rather than replacing older, higher-cost capacity.
And crucially for the rest of the world, it means that China will remain a major importer of raw materials such as alumina and bauxite but not of all that surplus metal that is hanging over the market.
And production outside of China is going to rise too over the coming year, largely on the back of new capacity ramping up in the Gulf region and in Russia.
Older capacity will just keep on hanging in there, largely thanks to the shifting price structure of the aluminum market.
Physical premiums are the life-saver for many operators. As the base London Metal Exchange (LME) price has fallen, premiums have risen, a phenomenon captured in the next graphic, showing European aluminum prices.
Right now the LME base price is trading just shy of 2,100 per ton, a level that, on paper at least, would spell more forced curtailments.
Throw in the near 300 per ton premium currently trading for duty-paid metal, however, and the price is sufficient for even the most marginal to eke out a meagre existence.
These historically high premiums result from the "cash-and-carry" trade, a low-return but low-risk trade that is attractive only in our through-the-mirror financial world of ultra-low interest rates and negative real returns.
It means huge amounts of surplus metal being sucked up by investment houses, both in LME warehouse and, more problematically for the LME's struggling warehouse system, in cheaper off-market rental deals.
You can bet that when the Rio board sat down to look at the economics of buying Alcan back in 2007, producing metal to be shunted into sheds to gather dust for metals financing deals was not on the agenda.
But this is where we are six years later.
And no-one is expecting much to change this year, other than for premiums to rise further still, as the tug or war for metal between manufacturers and investors heats up against a backdrop of manufacturing recovery.
Good news for marginal smelters it may be. But it also means that every producer, barring those bringing on new capacity in low-cost energy regions such as the Gulf, will be condemned to another year of living life on the margin, and a thin one at that.
- Andy Home is a Reuters columnist. The opinions expressed are his own.