BAUXITE & ALUMINA CONF: Alumina hydrate market on alert after Hydro’s production cut

By Davide Ghilotti
Published: Monday, 05 March 2018

Any drop in output from Hydro’s Alunorte refinery may affect the company’s ability to uphold alumina hydrate volumes and supplies of Brazilian material to the United States at a time of rising prices.

Market participants fear repercussions on alumina hydrate (ATH) supply to North America following Hydro’s announcement it will reduce production at its Brazilian refinery, two years after the company aggressively stepped up its exports to the US.

Delegates attending the 24th Bauxite & Alumina conference in Montego Bay, Jamaica, voiced their concern over supply flows of wet hydrate into the US in the near to medium term, at a time when limited availability has led to price increases in 2018 contracts.

On March 2, Hydro declared force majeure at its Alunorte alumina refinery in Brazil’s northern state of Pará following an order by the country’s authorities earlier in the week to cut output by 50%.

The force majeure  notice follows a period of heavy rainfall that led to flooding in Barcarena, where the refinery is located, and concerns over possible water contamination from Alunorte during the flooding.

Over the past week, local authorities ordered the company to cut alumina production and halt operations at its DRS2 bauxite residue deposit.

While it will primarily affect metallurgical smelter grade alumina (SGA) production, any reduction in total capacity at the refinery may lead to lower output of hydrate materials, delegates at the conference told Industrial Minerals.

US consumers eye developments with caution

"The market had somehow remained fairly balanced until now, with the closures in US capacity and the higher imports from Brazil," one delegate said on the sidelines of the event. "This [force majeure] may change all that."

Brazil saw a clear window of opportunity after two out of four US producers of hydrate – Alcoa Inc’s Point Comfort plant and Sherwin Alumina Co’s plant, both in Texas – closed down in 2016, leaving a gap in a previously well-supplied local market.

Exports of Brazilian ATH – the overall majority in wet form – were expected to rapidly increase over the following 18 months.

"You could see that Hydro came in heavily with the aim of securing the market share in the US that those two companies used to have," a second delegate added. "This concurred to stabilize prices."

In the wake of the 2016 closures, most participants active in the ATH space in the North American market in contact with Industrial Minerals were expecting "double-digit price hikes."

Prices, however, remained stable, thanks also to surging supplies from Brazil, which reached a high of 379,912 tonnes to the US alone last year, up by over 40% year on year.

Increased buying activity in the US during 2017 made the country the leading importer of Brazilian ATH. Exports to the US alone were equivalent to a 45% share of Brazil’s total 2017 trade.

In the first four months of last year, Brazilian exports to the US had grown by 150% year-on-year

The rise in demand was such that the US overtook Japan as the single largest buyer of Brazilian material last year.

Japan closed 2017 with 375,453 tonnes, equivalent to a 44% share. Together, the two importers accounted for almost 90% of Brazilian shipments.

The fast-rising export flows could be now disrupted by the slash in capacity at Alunorte, at a time of rising prices in the US.

Industrial Minerals assessed prices for damp alumina hydrate, 57-60% Al2O3, 5-8% moisture, at $280-300 per tonne ex-works US for 2018 contracts.

"Whatever the percentage of cutback, the impact can be significant," one delegate said. "If you are in hydrates, you don’t want to see that happen at this point. It’s not going to be pleasant."

Another delegate added that, depending on the duration of the production cut, next year’s contracts may be affected. While new capacity for hydrate alumina is currently being added in the US, this may fall short of making up for a sizable decline in market share from Brazilian sellers.

Political context

Brazil’s current political situation, with the country now in full campaign mode ahead of what will arguably be one of its most sensitive political elections in recent history, is bound to complicate the issue further.

"Whatever is happening now with Hydro must be seen in the political context of today. With such a hyped election round the corner, [local authorities] would want to be seen to be acting swiftly – especially if environmental concerns are part of the picture," one delegate said.

Another one described the situation as "a bit of a media storm that fits with the charged political scenario" in the country. "This can – and I hope, will – be sorted in not too long."

"It’s all about timing," a third delegate commented. "If it’s a few weeks or a month, it would be a hiccup in supply flows. The longer it stretches, the stronger the impact on the market. And this applies also to non-met end users."

Alunorte is the world’s largest alumina refinery, with an annual nameplate capacity of 6.3 million tonnes per year. 

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