In mid-April this year, prices of alumina, the intermediate material from which the white metal is melted, hit a panic driven price of $700 a tonne in reaction to the ill-conceived US sanction against UC Rusal which, besides having a 6% share of the global production, owns alumina refineries in Russia, Ukraine, Italy and Ireland. The sanctions threatened to cut off Rusal from the global market and left buyers of its alumina in a quandary as they were unable to continue with their contracts.
In a panic that set in as a result, one or two deals not involving Rusal alumina were reportedly made at $800 a tonne.
What further exacerbated the shortfall in global supply of alumina is Norsk Hydro halving production at its Alunorte refinery in Brazil on court orders involving environmental issues.
No wonder alumina prices hit their highest levels since 2011. Metal groups such as India’s National Aluminium Company, which make more money by way of selling alumina than the metal found in recent developments an opportunity to earn super profits.
Alumina prices ruling that high took aluminium on London Metal Exchange to $2,600 a tonne in April, marking more than a 20% rise over 2017.
Sanity has since returned to the market with the US softening its stance on Rusal considerably by extending the deadline for companies by about five months to stop dealings with Rusal by October 2018. How the market for alumina and aluminium will behave in coming months will depend largely on what stand the US continues to take visà-vis Rusal, the world’s largest exporter of the white metal.
The 2017 production of Rusal was 3.8mt (million tonnes). Its aluminium output could have been more but for Rusal joining the ranks of the likes of China Hongqiao, Alcoa and Hydro in capacity elimination to bring about a better balance between global demand and supply. The Russian domestic alumina demand being 820,000 tonnes, the company’s export of the chemical was 2.9mt last year.
Observers see in the US Treasury Secretary Steven Mnuchin’s April 23 statement that “Rusal has felt the impact of sanctions because of its entanglement with Oleg Deripaska. But the US government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” a clear possibility of the US “backing down on
its threats in return for relatively modest concessions” by the company. The US Treasury hopefully will continue to take an indulgent view of Derispaka, who owns 48% of the company, distancing himself from Rusal by resigning from the board. The CEO and seven other company directors had too resigned to ensure that US sanctions do not become “materially adverse” to Rusal business.
Rusal supplies to its global customers have resumed as the fear of banks freezing payments has receded.
Sanctions tensions easing saw retreat in prices of both alumina and aluminium. As for alumina, nominations for the second half 2008 contracts from producers in Taiwan, Japan and South Korea were above $500 a tonne FOB (free on board) with most offers falling in the range of $510 to $520 a tonne.
Vedanta Aluminium CEO Abhijit Pati says caustic soda prices rising by nearly 55% since the year start to up to $450 a tonne has added to the cost of making alumina. Traders believe caustic soda prices will continue to move northward in the next few months. So producers are not under pressure to sell. (Alumina is separated from bauxite by using a hot solution of caustic soda and lime.)
While UBS has forecast global alumina supply at 126mt this year, Alcoa sees market deficit of 300,000 tonnes to 1.11mt due mainly to supply disruptions in the Atlantic region. Expect then alumina prices to remain above $500 a tonne for the rest of the year. Pati says aluminium will find support at the current three-month LME price of $2,300 a tonne. Pati’s price forecast finds resonance in Fitch group affiliated BMI research saying that aluminium groups in China, which have well over half the share of global output, and outside will continue the process of taking outdated and high cost capacity offline in an environment of strong demand growth. According to Pati, “from here to 2022, world aluminium demand will grow at a CAGR of 3.8%.
Demand growth will be particularly impressive in aerospace and automotive sectors.”