Jul 03

Alcoa forecasts 2019 alumina surplus on China production rises

The removal of US sanctions on producer Rusal has added strength to Alcoa’s forecast of a surplus in alumina in 2019.

United States-based Alcoa, the world’s eighth-largest aluminium producer, has forecast that there will be a surplus of alumina in 2019 while it increases aluminium metal shipments.

There was a 600,000-tonne deficit of alumina at the end of 2018, the company said, rounding off a year of record market tightness.

Fastmarkets’ alumina index rocketed upward to $707.75 per tonne on April 24, 2018, the highest since the index was first assessed in 2010, because a series of stoppages at major refineries choked supply.

But Alcoa is forecasting that the market will swing to a surplus of 200,000-1 millions this year, even if the current shortfall in supply continues. The shortfall results from the closure of Norsk Hydro’s Alunorte facility in Brazil.

“The projected alumina surplus is being driven by China, where refining expansions are expected to outpace demand growth from smelting,” Alcoa said.

Fastmarkets’ alumina index will be used in a basket of prices to settle contracts on the London Metal Exchange, the exchange announced in January.

2018 supply squeeze

In March 2018, Hydro’s Alunorte refinery was forced to reduce its output by 50% in line with state environmental concerns.

Given its capacity for 7 million tonnes per year, a potential 3.5 million tonnes of alumina was subsequently kept from the market.

In April, US sanctions against Russian aluminium producer UC Rusal, which runs an alumina refinery in Aghinish, Ireland, further restricted supply.

Market to swing to surplus

But the factors that led to a deficit last year look set to improve. Norsk Hydro announced on January 16 that some state-level embargoes had already been removed.

The return of Alunorte to full production under the new Brazilian government is expected to reintroduce much-needed material to the market.

“With the production embargo removed at a state level, Alunorte is gearing up to return to full production. Yet, the embargo at a federal level remains in place. The current alumina price of less than $400 per tonne reflects this, and we see a potential restart from the second quarter onward, with a return of 3 million tpy putting pressure on marginal Chinese producers,” BMO Capital Markets analyst Kash Kamal said.

US sanctions against UC Rusal were removed on January 27, further easing any residual tightness from 2018.

Further, a strike at Alcoa’s Brazilian refinery in September 2018, which exacerbated last year’s supply
squeeze, has ended. Indeed, Alcoa’s shipments of alumina are set to increase by 5.8-6.6% year-onyear
in 2019 to a total of 13.6-13.7 million tonnes.

Refined metal shipment increase

The decommissioning of the Avilés and La Coruña plants was announced in October 2018 and will see
the end of operations at the two smelters, which have combined capacity for 124,000 tpy.

The move has been described as an operational improvement, and higher year-on-year production is
expected. Casthouses will remain open in both locations, however, with La Coruña also retaining its
pasting operations.

Alcoa expects an annual improvement to net income of $70-80 million on the strength of the
closures and subsequent restructuring.

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