The declaration of force majeure at Hydro’s Alunorte refinery in Brazil, strikes by Alcoa workers in Australia and US sanctions against Russian producer UC Rusal roiled the market this year.

Consequently, Fastmarkets’ benchmark daily alumina index fob Australia hit an all-time high of $707.75 per tonne in April, an increase of 75% from the start of the year.

The disruption at Alunorte significantly tightened the market, making shipments hard to secure. Traders had to pay record fees to secure material and aluminium smelters ran at a loss.

The disruptions this year have turned alumina traders cautious but optimistic for 2019 even though the fundamentals might suggest a bearish 12 months.

“This year has encouraged people to err on the side of caution and this gives a more bullish alumina outlook for 2019 than fundamentals alone suggest,” a trader said. “It highlights how quickly production problems can escalate. You could wake up on a random morning to a strike or closure.”

Hydro expects to restore operations at Alunorte to full capacity in the first quarter of 2019; if it does, the alumina market should remain well supplied for 2019 and prices should return below $400 per tonne.

But the floor for the alumina price has now been raised and producers will protect their prices in case of a repeat of 2018, the market believes.

“The market will not return to its norm next year - the floor has been lifted and the low levels we saw as normal in previous years will now be a lot higher,” a second trader said.

“No-one is going to put themselves at risk again. Producers will keep higher prices, knowing that even at $400 per tonne some traders will see it as a good deal now because they remember the time they were paying $700,” a third trader added.

Fastmarkets assessed the daily alumina index at $421.72 per tonne on Friday December 14, at 22% of the London Metal Exchange aluminium cash price. A percentage above 20% is historically high.

The disparity between high alumina prices and low LME aluminium prices made 2018 a tough year for smelters.

In September in Australia, alumina was trading at 30% of the LME aluminium price. Smelters start to lose money when the alumina price rises above 19% of the aluminium price, traders told Fastmarkets.

“Smelters were 'killed' this year. There were months where none of them were making money and for that reason the market is more cautious,” a producer said.

“Part of the market has to go into next year assuming the worst and remain quietly bullish. Because otherwise they will get burnt again,” a fourth trader said.

The market’s focus remains firmly fixed on developments at Alunorte - nerves will start to fray if Hydro does not make an announcement about a restart in January, traders said.

“The market is 50/50 split between being bearish and bullish at the moment. It’s a guessing game,” a consumer said. “But if we do not hear positive news soon, spot prices will edge up because the market will have to assume the worst: That Alunorte is not returning in the first half of 2019.”

Market well prepared for another ‘disaster situation’
But traders cannot be too bullish for fear of being caught with large stocks in a falling market, some said.

“We do not want to be long on alumina in a collapsing market. All that needs to happen is an announcement saying Alunorte is returning and within hours the market will collapse,” a fourth trader said.

Still, there was consensus that the market is better prepared to deal with a repeat of 2018 next year.

“Now we have our contacts in Asia built up, we have the Chinese companies ready to export to us and our customers are now willing to take the metal,” a fifth trader said. “We have everything sorted for if this happens again. Everyone has an outlet now - there won’t be as much panic.”

Participants in the Atlantic and Pacific markets started to buy alumina from China throughout the summer months when there were no other cargoes available.

Previously, some smelters lacked the flexibility or the internal approvals to accept Chinese material. But Chinese alumina performed well in smelter trials, prompting some to diversify their feed sources to accept it, market sources told Fastmarkets.

“This was a disaster situation and we learnt from it. We now have the tools to deal with it and people will know what to do,” a second consumer added.