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