SHANGHAI, August 13th (Argus) - Norwegian aluminium producer Hydro's Alunorte alumina refinery in Brazil (with an annual capacity of 6.3 million tons) has decided to reduce production due to a gas supply disruption. Market participants told Argus that this move is expected to tighten the supply of alumina outside of China and support Chinese prices in the medium term.
Alunorte is the world's largest alumina refinery outside of China. Part of its output is supplied to Hydro's Albras aluminium smelter in Brazil, and the rest is sold to the maritime market.
Hydro announced on August 11th that its Alunorte refinery had received a notice from its gas supplier that the gas supply would be reduced. The refinery then cut production to 50% of its capacity. Hydro stated that once the gas supply resumes, it will return to normal production. However, the duration of this disruption is still uncertain.
Participants in the Chinese market said that this shutdown could further tighten maritime supply and support overseas alumina prices, thereby reducing the enthusiasm of traders to ship goods to China. This could alleviate the pressure on domestic market import supplies and provide support for Chinese alumina prices, potentially reversing the recent downward trend.
The Shanghai Futures Exchange's October alumina main contract closed at 2,711 yuan/ton yesterday, up 0.6% from August 10th, reflecting an improvement in market sentiment after Hydro's announcement.
Argus' assessment of the Chinese metallurgical alumina ex-factory price dropped from 2,750-2,830 yuan/ton on April 3rd to 2,700-2,800 yuan/ton on August 7th, under pressure from strong domestic production and rising imports.
According to data from the National Bureau of Statistics of China, China's alumina production increased by 3.3% year-on-year to 4.58 million tons from January to June. According to China Customs data, imports soared by 749% to 2.3 million tons during the same period, mainly due to the opening of the import arbitrage window attracting inflows.
During the US-Iran conflict, demand for alumina in the Middle East was weak, leading to an oversupply in the maritime market, dragging down overseas prices and opening up import arbitrage windows to China for most of the first half of this year. Favorable economic benefits encouraged traders to increase shipments to China.
However, since July 1st, as aluminium producers in the Middle East resumed raw material purchases, the price of maritime alumina has risen. According to Argus' survey, the Australian off-ship price of metallurgical alumina this week is 345-350 US dollars/ton. After considering freight, handling charges and value-added tax, importing to China is no longer economically feasible.
Some market participants expect that if the supply disruption continues and leads to the reopening of export arbitrage windows, Chinese alumina prices will rise further. A trader told Argus that based on current freight and handling costs, if overseas alumina prices rise above 460 US dollars/ton and domestic prices remain near the current level, exporting from China will become feasible.
