Spot alumina prices to stay firm for now: Nalco

International spot alumina prices are poised to remain firm despite the higher possibility of Norsk Hydro’s Alunorte refinery in Brazil regaining its full capacity.

This is the world’s largest refinery, with of 6.4 million tonnes per annum (mtpa). It recently signed two agreements with Brazilian authorities on social and environmental obligations. The refinery has been facing embargoes and is operating at barely half its designed capacity.

Industry watchers believe its resuming of full-scale operations could happen sooner than expected. This will help moderate soaring alumina prices, as 86 per cent of the refinery’s output is shipped outside of Brazil.

T K Chand, chairman of National Aluminium Company (Nalco) here, a key beneficiary of alumina price upswings, thinks this recovery of Alunorte to full capacity should take up to three months, even if it secured all approvals.

“When a refinery is downsized, it takes time to revert to its optimal capacity. Alunorte’s transition might also involve legal procedures. Beside, no timeline has been fixed in the agreements signed. Till then, alumina prices will be firm. We expect spot prices at $625-675 a tonne at least till December,” said the chairman of the governmentowned entity.

A metals analyst concurred: “Price movements of commodities tend to be volatile. But, alumina has continued its dream run and the outlook is bullish in the near term. Companies like Nalco which export surplus alumina are massive gainers.”

Globally, turmoil in markets has been buoying alumina prices. A stir called by 1,600 workers at Alcoa’s unit in Western Australia since August 8 has held back around nine mtpa of production. Refineries at Jamaica and Indonesia are working at depleted capacities. China is staring at winter capacity cuts of its aluminium smelters as pollution concerns mount.

“The combined effect of all factors will lead to an alumina shortfall of 1-1.5 mt in calendar 2018. The deficit will strengthen prices,” Chand said.

In four weeks, spot prices rose about 10 per cent to a high of $623 a tonne, the highest since April, when sanctions by the US government on UC Rusal, biggest aluminium maker outside of China, sent markets into a tizzy. Nalco's latest shipment price for its alumina was $646 a tonne at keenly contested global tenders. It is selling all its alumina at spot markets, gaining from robust price movement.

Each year, Nalco ships 1.21.3 mt of alumina. Due to its timely supplies and quality of product, the company commands a premium of 10 per cent over the index prices. Forty six per cent of its revenue is derived from alumina sales. Every $10 a tonne rise in alumina bolsters Nalco’s net profit by ~910 million yearly. The rupee’s devaluation has helped — every single point fall against the dollar translates to ~1.6 billion additional net profit a year. Nalco’s net profit in the June quarter, the first this financial year, was ~6.87 billion.