Alumina prices set to plummet back below $500/t following Alunorte U-turn – sources

The reversal of the decision to shut down Hydro’s Alunorte refinery means alumina prices will quickly break below the $500 per tonne level, traders said.

Hydro’s announcement last week that Alunorte would shut down 100% of its operations sparked market panic with the alumina fob Australia index climbing higher and business for Chinese cargo concluded at $600 per tonne.

But news over the weekend that the decision has been reversed, and Alunorte production will resume at 50% of capacity, has changed the direction of the market once again.

“The announcement shows that Alunorte won’t shut down and the relevant authorities will step in when it gets too much – this is a bearish factor for the alumina industry,” a trader said.

“We were on a downward spiral before last week’s panic and now we will be back on that path. Alumina prices will be down below $500 per tonne in the coming days,” he added.

On Saturday October 6, Hydro was granted an “exceptional authorization” by the Brazilian federal environmental agency to use its press filter technology on bauxite residues, which will utilize “considerably less water”, enabling the company to extend the life of its DRS1 deposit.

Fastmarkets MB’s benchmark fob Australia index had climbed 14% to $531.67 per tonne on Friday October 5 after the shutdown announcement.

Since the latest update, the index has fallen for three days in a row, standing at $512.08 per tonne on Wednesday October 10 – a 3.68% drop from Friday.

Traders say the next cargo will transact at much lower levels, with a Nalco tender expected to be announced in the coming days.

“I heard Nalco had a tender canceled last week and they may put it back on the market during LME Week, so it will be interesting to see what numbers it will come out,” a second trader said.

“Prior to [the announcement from] Alunorte, the market was actually going down,” the second trader added. “As you may heard, two weeks ago an Australia cargo went for $451 per tonne. So, it is a very confusing market.”

Bearish factors through 2018-end
The alumina market spiked to a high of $707.75 per tonne in April following US sanctions against Russian producer UC Rusal and when Hydro initially reduced production at Alunorte to 50% capacity on the orders of the Brazilian government.

While the market has been increasingly tight throughout the summer months, numerous factors now mean the end of 2018 looks bearish for prices.

The extension of the wind-down period for Rusal contracts to November has given many in the market hope that the sanctions will eventually be lifted. As well, strike issues at Alcoa’s refinery in West Australia have also been resolved.

“Issues that were pushing alumina higher have been resolved to one extent or another and people can cope with Alunorte being at 50%,” a producer said.

“The market is well covered until the end of the year now – and no-one wants to buy in a falling market,” he added.

The single trade at $600 per tonne for Chinese cargo last week did push people’s assessments higher but considered in context, market participants recognize it was a one-off panic purchase.

“The trade at $600 per tonne last week was only a panic buy – now things have been reversed. No-one will be able to sell at this level,” a third trader said.

“We were on a downward spiral before the shutdown announcement, and that is where we will return to,” he added.

What to read next
Declining steel prices will likely dent US mills’ earnings across the board for the second quarter, Fastmarkets has learned from recent company guidance releases
The June construction startup of a new steel plant in Deacero's complex in Ramos Arizpe, in the northeastern Mexican state of Coahuila, will position the company to meet future demand for lower-carbon steel nationally and abroad, a Fastmarkets analyst said on Monday June 17
Read more from senior analyst Andy Farida on how the price action in LME nickel has played out in the first half of 2024
Tight aluminium scrap availability, the increase in container costs, sluggish demand in the US and the US market’s current indifference to rising premiums in Europe and Asia were the top subjects discussed during the Harbor Aluminum Summit that took place in Chicago on June 4-6
Tata Steel intends to continue with plans to close its blast furnaces at the Port Talbot Steelworks in Wales, and called for both of the UK’s major political parties to adhere to the terms of its plan to develop a lower-emissions electric-arc furnace-based steelmaking plant on the site, the firm said on Tuesday June 11
A “special action plan for carbon reduction” unveiled by China's National Development & Reform Commission (NDRC) will reduce the need for coking coal and iron ore by focusing on upgrading existing equipment and the switch to electric-arc furnaces, sources told Fastmarkets this week