Calcined alumina outlook

By Davide Ghilotti
Published: Friday, 03 January 2020

Suppliers debate whether calcined alumina can break the oversupply wall in a bearish 2020 scenario, writes Davide Ghilotti.

Market participants active in calcined alumina have been debating whether the sector has slid into oversupply because of bearish end markets or if the previous overstocking phase has a little life left in it – and how that may play out in a slow 2020. 

Availability of calcined alumina volumes has improved drastically compared with the 2016-18 period, during which material was scarce and prices rose steadily. Following two years of tightness, the market then turned in a matter of months into 2019. The smooth running of operations over the past year led to improved timeliness of output and deliveries to customers after a 2018 characterised by delays, production problems and insufficient volumes.

Demand, meanwhile, slowed in the first half and took a sharp hit in the second half, affected by the woes of the refractories and steelmaking end markets. "Europe is very weak but demand in China is also down a lot," one seller said in mid-November, noting how the decline in trade to China is exacerbating the stock situation elsewhere.


Cost and prices 

As a result, market prices during 2019 gradually came off the highs set at the beginning of the year. 

Fastmarkets assessed the price of alumina, calcined, ground, 98.5-99.5% Al2O3, bulk, exw US/Europe, long-term contract at $740-900 per tonne on December 5, down from $860-1,000 per tonne in January – a drop of 12% on average. Fastmarkets’ price assessment for alumina, calcined, unground 98.5-99.5% Al2O3, bulk, exw US/Europe, long-term contract fell to $670-800 per tonne in early December from $750-850 per tonne in February, down by 8%. 

For both grades, the low end of the range is now lower, or very close to, where it was at the start of 2018 while the top end remains slightly higher. 

Suppliers had to give in to lower prices while consumers pressured for discounts. By the time of writing, both the sell and buy side tell Fastmarkets there is no rush to close new-year contracts. Negotiations are proceeding slowly and will probably extend into the first quarter of 2020. Some producers believe the sector is still facing the tail end of a previous overstocking situation, which was exacerbated throughout the year by worsening end markets rather than chronic oversupply. 

"We could still be seeing a lag due to overstocking previously. If that’s the case, it could balance out at some point, even amid bearish [end market] conditions," one producer said. "Oversupply is a different kind of animal." 

Suppliers have called for output to be curbed at this time to reduce flow of material into the market at a time of continued destocking. This, they argue, would help cushion against the hardest price drops. "We’re not running [at] full [capacity]. I don’t expect anyone is right now," a second producer said. "We should adjust production instead of drastically reduce prices."  

On their part, buyers conceded that inventory levels remain high despite users having sought to de-stock for most of the year. One refractories producer that had a strong year despite the widespread slowdown, owing to its exposure to non-steel markets including glass and petrochemicals, said in December: "We still have plenty of stocks, even considering the increased order book. We are not looking to lock new supply right now." 

Another refractories manufacturer in Europe added that the tightness of the previous years had all but dissipated, giving way to high availability and unsold material sitting in warehouses. "We feel the oversupply is evident, as in other refractory raw materials. Until end markets do not improve, we cannot see how this would change. There will be more bearish price pressure," he said. 

Cost structures for suppliers have eased somewhat compared with previous years. One major producer told Fastmarkets that energy costs in 2019 have fallen, caustic soda sourcing has not been problematic and the smelter grade alumina (SGA) feedstock price has dropped. SGA or alumina hydrate (ATH) are the main feedstock for speciality calcined non-met alumina products. 

The Fastmarkets daily alumina index, fob Australia, fell to below $280 per tonne on December 10, after losing 30% since January’s levels of close to $400 per tonne. This has allowed producers to contain costs in a bearish market scenario, although those sellers with particular exposure to SGA may be able to exploit it more than others.

Connection to SGA market 

Participants note how a closer connection than before is being formed between the speciality calcined alumina industry 

and the metallurgical SGA market. Recent corporate moves, including Almatis’ divestment of its Burnside alumina refinery in the US to Arthur Metals last July, have supported this. "With Almatis selling off Burnside, only very few of the main players are still vertically integrated, with their own refining facility," one producer said. "Everyone else sources third-party feedstock, mainly SGA or ATH." 

Crucially, this means that calcined alumina producers are more exposed to the volatility of the SGA market at times of increasing met grade prices and have more leeway to exploit lower SGA prices on the way down. "Now that the alumina price is down, the companies who don’t produce SGA themselves have more ability to drop their market prices and can go lower compared with a vertically integrated producer who has fixed costs," one said. 

As a result of a higher share of the market sourcing third-party feedstock, participants expect closer correlation between the SGA price and the prices for speciality calcined alumina, potentially creating higher volatility in the non-met space.