Spot alumina prices to stay in $625-675 range till December: Nalco

This, despite the possibility of Norsk Hydro's Alunorte refinery in Brazil, the world's biggest, regaining its full capacity

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

The Alunorte refinery, the largest in the world, with a nameplate capacity of 6.4 million tonnes per annum (mtpa) lately inked two agreements with the Brazilian authorities, pledging social and environmental obligations. The refinery has been facing embargoes and is operating at barely half of its design capacity. Industry watchers believe Alunorte refinery resuming full scale operations could happen sooner than expected. The step will help moderate soaring alumina prices as 86 per cent of the refinery's output is shipped outside of Brazil. 

National Aluminium Company (Nalco), a key beneficiary of alumina price upswings, believes the process of Alunorte refinery tapping its full capacity may take two 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 will not be sudden as the process may also involve legal procedures. The full ramp-up could be achieved only after a span of two to three months. Besides, no timeline has been fixed in the agreements signed. Till then, alumina prices will be firm. We expect spot prices of alumina to rule in the range of $625-675 per tonne at least till December”, said Nalco's chairman & managing director T K Chand.

A metals analyst concurred, saying, “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, the turmoil in markets has been buoying alumina prices. A stir called by 1600 Alcoa workers in Western Australia since August 8 protesting the existing enterprise agreement, has held to ransom around nine mtpa of alumina production. Alumina 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 million tonnes in calendar 2018. The deficit, in turn will strengthen prices”, Chand said.

In a span of four weeks, spot alumina prices firmed up by about 10 per cent to reach a high of $623 per tonne, the highest since April this year when sanctions by the US treasury on UC Rusal, the biggest aluminium maker outside of China, sent markets into a tizzy. 

Nalco's last shipment price for its alumina despatches stood at $646 at keenly contested global tenders. The central PSU is selling all of its alumina at spot markets, thus gaining from robust price movements. 

Each year, Nalco ships 1.2-1.3 million tonnes of alumina. Due to its timely supplies and quality of products, 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 rise in alumina prices bolsters Nalco's net profit by Rs 910 million per annum. Rupee devaluation has also added to Nalco's realisations -- every single point fall against the dollar translates into Rs 1.6 billion additional net profit in a year.

Riding on surging alumina prices, Nalco logged Rs 6.87 billion net profit in Q1. Brokerage firm Motilal Oswal believes that Nalco’s Ebitda (earnings before interest, taxes, depreciation and amortisation) would increase by 71 per cent to Rs 28.4 billion in FY19, considering the strong sector tailwinds.