Alunorte’s Restart Does Not Bode Well for Aluminum Prices

According to the Financial Times, Norsk Hydro’s giant Alunorte refinery in Brazil has been given approval to restart production by the Brazilian authorities.
The announcement caught the market by surprise, coming some months earlier than had been expected.
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The restart is a boost for Hydro, whose Brazilian operations, which form bauxite for primary aluminum, have had a slow go of things for the last year. The firm has been forced to run its 6.3 million ton refinery at half its normal capacity following a 2018 dam tailings spillage.
The Financial Times reports production at Alunorte would hit 75-85% of its 6.3 million ton capacity within two months, adding some 2 million tons per annum to the market.
“Production at Hydro’s Paragominas bauxite mine will be increased in line with the ramp-up speed at Alunorte,” the company is quoted as saying. “A decision to increase production at Hydro’s part-owned Albras primary aluminium plant is also expected shortly.”
Alumina prices had been supported by Alunorte’s slowdown and further buoyed by environmental pressure on refineries in China. However, this month authorities ordered the closure of a major refinery in Shanxi province following spillage of red mud waste tailings.
But overall, China’s exports have been at a record high and new alumina refineries are coming on stream.
AluminiumInsider reports Emirates Global Aluminium’s Al Taweelah refinery will, at full capacity, produce 2 million tons per year, with output for 2019 expected to be around 0.7 million tons.
Other projects expected to restart or increase production in 2019 include: the Alpart Alumina refinery in Jamaica, India Vedanta’s Lanjigarh refinery and Friguia refinery in Guinea, the article notes.
Global alumina production (excluding China) is expected to increase by nearly 4 million tons this year compared to 2018, with further capacity coming on stream in 2020. All this new supply will undermine price support for spot alumina and, in turn, the primary aluminum price.
Many aluminum smelters caught between relatively high spot alumina prices and an already weak aluminum price have had their margins squeezed.
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To the extent that alumina prices ease this year, that pressure could ease — but so will support for the primary ingot price as smelters are allowed to adjust prices to the market.