Alumina price gains nearly $100/t in March after Alunorte force majeure creates spot demand

Spot alumina prices soared 27.8% over the course of March, with buyers forced to pay up for units while Hydro’s Alunorte refinery operates at 50% of its capacity.

Metal Bulletin’s benchmark daily fob Australia alumina index settled at $447.30 per tonne on Thursday March 29, up from March 1’s calculation of $349.88 per tonne.

“There was definitely more length in the Pacific [at the time of the force majeure announcement] but the available Australia units got tied up pretty quickly and since then people have started to panic,” a producer source said.

Hydro was forced to cut output from its Alunorte refinery after it failed to achieve a freeboard of one meter in its bauxite residue deposit DRS1 by a deadline of February 26.

Hydro subsequently declared force majeure at Alunorte, which has an annual capacity of 6.3 million tonnes, on March 2.

Prices quickly found a floor at the beginning of the month, and then stabilized between March 9 and March 20, when Metal Bulletin’s daily index settled between $377.18 and $374.50.

“The market was fairly relaxed [since] inventories were pretty high prior to [the force majeure],” a trader said.

“The main concern was for very nearby units; for anything further out than about a month, there was less concern,” a second trader added.

Buyers initially withheld from the spot market amid uncertainty over how long Alunorte would continue to operate at half capacity.

“There was a feeling that Alunorte could restart, and any excess stocks on their books would affect how they’re measured internally,” a consumer said. “If [the situation is] suddenly resolved, at any moment, the alumina market could suddenly be very long again.”

However, as restricted operations at Alunorte continued, buyers were forced to address their supply needs.

“There was a lot of skepticism [over how long the force majeure would last] and a lot of the pent up price elasticity. Ultimately, buyers are faced with not insignificant supply concerns,” the first producer said.

Fob Australia alumina prices jumped from $374.50 per tonne on March 20, to $445.69 per tonne a week later, according to Metal Bulletin data, as fixed-price spot trade picked up.

In the Atlantic, alumina has traded at a premium to material in the Pacific, as a result of pronounced regional tightness created by limited operations at Alunorte.

Metal Bulletin’s fortnightly fob Brazil alumina index, calculated as a differential to the daily fob Australia benchmark, started the month at a discount of $1.35 per tonne, but was calculated as a premium of $10.09 per tonne on March 29.

Yet while alumina prices in the international market swelled in March, prices for the raw material fell in the Chinese domestic market, creating an opportunity for resellers to shift stock.

Alumina prices were assessed at 2,650-2,700 yuan ($422-430) per tonne, delivered in China on March 29, compared with 2,700-2,800 yuan per tonne on March 1.

“[The Chinese] don’t need Australian stocks in the backyard, especially when local refineries will restart after the winter,” a second consumer said.

Local buyers are sitting on comfortable stocks from their long-term supply contracts, with spot prices for imported material unappealing, sources added.

“I don’t think Chinese buyers have any desire to import seaborne alumina. [They] might be willing to buy at $360 or $370, but over $400, it’s impossible for any Chinese player to take the cargo,” a third trader said.

However, in the short term, price momentum is expected to continue upward in the international alumina market, until supply restraints ease.

“It is definitely not the ceiling for alumina prices to peak at $447.5 per tonne. It’s certain it will move up further,” a third consumer said.

“As long as the Alunorte situation continues, the next trade will be above $450,” the first producer added.

“With current supply situation, it won’t be difficult for Australia alumina price to hit $480 per tonne by the end of May,” a second producer source said.

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