Bids and price indications for scarce spot alumina cargoes soared late on Thursday April 12, while buyers digested the effect of US sanctions on UC Rusal in a market that has already been tightened by the force majeure at Hydro’s Alunorte refinery in Brazil.
“I’m hearing a spot tender had four bids above $500, yet to be awarded,” a consumer had said early on Thursday.
Buyers and sellers later indicated that the tender was awarded between $550 and about $600, although the final tender price had not been confirmed at the time of writing.
Metal Bulletin’s benchmark daily fob Australia alumina index was calculated at $477.16 per tonne on April 12.
Metal Bulletin will next calculate its alumina index on Friday April 13.
Market participants were reacting to reports that Rusal has declared force majeure on some alumina shipments. The force majeure is likely to affect material produced at Aughinish, Ireland, and Windalco, Jamaica, from which Rusal ships alumina, sources said.
The US Department of the Treasury placed sanctions on Rusal last week. The Russian aluminium producer was not available to comment on reports of force majeure on its alumina shipments when approached by Metal Bulletin on Thursday.
Aughinish produced 1.94 million tonnes of alumina in 2017, while Windalco produced 582,000 tonnes of material.
“[A force majeue] will surely push things higher – we’re getting tighter and tighter by the minute,” a trader said.
“There’s a real scram on now,” a second trader said. “The fact that anyone’s mindset is close to $600 being a realistic number - there have to be others in the same boat, or even in the $500s.”
A ‘confluence of events’
Multi-year price highs are in the cards for alumina following a strong rally in prices since the beginning of March.
Spot prices are up 36.4% in the six weeks since March 1 as a result of tightness caused by the force majeure at Hydro’s Alunorte alumina refinery.
Hydro was ordered to operate Alunorte at 50% of its capacity in late February, after concerns that severe rainfall in Brazil’s northern state of Pará had resulted in water contamination.
The force majeure has been in place at Alunorte since March 2. The refinery has a nameplate capacity of 6.3 million tonnes per year.
“Alunorte is still out, and now it looks like that tightness will be exacerbated,” the producer source said. “Force majeure [at Rusal] removes an option that could potentially substitute the lack of units from Brazil. There could still have been adequate substitutes, but this takes you to a fundamentally short market. It’s a confluence of events.”
The force majeure on Alunorte alumina units has already substantially tightened the Atlantic market. The premium available on Brazilian alumina compared with the fob Australia alumina benchmark stands at $12.15 per tonne, according to Metal Bulletin’s fob Vila do Conde index. The Brazil index was calculated at a discount of $1.35 as recently as March 1.
That premium is not likely to rise much further, market sources said, noting that tightness is so acute in the Atlantic that it is expected to create additional demand on units from other regions. Pacific prices are therefore also expected to jump.
“There are Pacific units available - not necessarily Australian, but there is some material around. There’s a freight penalty if you’re taking units to the Atlantic, but if the alternative is having no feed, you’ll pay whatever the price is,” the producer said.
Alumina prices on course to jump
Metal Bulletin’s alumina index moved above $475 per tonne fob Australia on Tuesday April 10, on the back of a 30,000-tonne trade in the Pacific, rising from $451.72 on Monday April 9. But limited trade and availability of other cargoes has so far precluded further substantial gains.
“The momentum is up. So as soon as you see a cargo trade, that price probably isn’t available anymore, but material is just so tight it’s hard to gauge what is realistic,” a third trader said.
“I can see alumina going [as high as $600] – things are getting tighter and this [Rusal] force majeure means everyone is stuck,” a fourth trader said. “[The market] will go higher for sure, mirroring aluminium premiums,” he added.
Metal Bulletin’s daily duty-unpaid, in-warehouse Rotterdam aluminium premium was assessed at $105-115 per tonne on April 12, up from $98-105 previously, due to spot liquidity returning for the first time since the US sanctions on Rusal were announced.
Offers and business have since been reported above $130 per tonne. The premium will next be assessed on April 13.
Metal prices have also strengthened. The London Metal Exchange’s three-month aluminium price settled at $2,212 per tonne on April 12, up 11.2% compared with a week ago. Prices reached highs of $2,331 per tonne on an intraday basis.
Ahead of the recent move up in metal prices, sources reported higher raw material prices squeezing their margins, with alumina trading at 22.6% of the aluminium price on April 6, according to Metal Bulletin data.
“But aluminium is since up over $300 - that gives a lot more room for alumina to go up again,” the second trader said.
Alice Mason, London, contributed to this article.