Apr 18 2023
This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, cobalt, lithium, and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts to new arbitrages, and to quality spread fluctuations.
Supply disruption risks and lackluster downstream aluminum demand are expected to circumscribe global alumina price moves in the second quarter of 2023, following gains in the first quarter on the back of output curtailments and stockpiling activity.
The first quarter saw supply interruptions in the Pacific and Atlantic basins in the form of a force majeure involving the Kwinana Alumina Refinery in Western Australia and a belt system failure at Brazil's Alumar refinery.
European aluminum smelting capacity that was curtailed in 2022 due to high energy costs has been largely offline, while aluminum output in China has risen along with domestic alumina production. New alumina refining capacity in China and a closed arbitrage window also kept spot Chinese import demand at bay in the first quarter.
Platts, part of S&P Global Commodity Insights, assessed benchmark Australian alumina at $355/mt FOB on April 14, up from $330/mt FOB at the start of the year but down from a year-to-date high of $371/mt FOB in mid-February.
The market has been split on the impact of costs pressures and lower output at some Australian alumina producers.
Higher energy prices and raw material costs, such as caustic soda and bauxite prices, have been among some of the key factors driving operating costs for Australian alumina producers.
While Australia's Worsley Alumina achieved record production in the 2022 financial year, output at other Australian alumina producers fell during the period.
"Considering these factors, the market would be tighter compared to 2022, and there would be an increase in support for prices moving forward," an Asia-Pacific producer said. "The prior ex-Russia supply glut due to the Australian export ban to Russia had already been priced in by the market at current levels below $400/mt FOB Australia."
Worsley Alumina's production exceeded its 4.6 million mt/year nameplate capacity in FY 2022. South32, which operates the refinery, expects to sustain output levels in FY 2023.
Queensland Alumina and the Yarwun refinery on East Coast Australia produced a total of 6.374 million mt in FY 2022, down from 6.798 million mt in FY 2021.
Alumina production at the Pinjarra, Wagerup and Kwinana refineries owned by Alcoa World Alumina and Chemicals stood at 8.991 million mt in FY 2022, declining from 9.577 million mt the year before.
Alumina Limited, which owns 40% of AWAC, expects its output to decrease in FY 2023 because of a lower bauxite grade, gas supply disruptions, and refinery maintenance.
But as caustic soda and bauxite prices have fallen thus far in 2023 from a 2022 peak, a Western consumer said Australian alumina prices could see further downside from current levels. "The continuously rising alumina refining capacity in China would also continue to pressure prices there, and a proper stabilization would be where the Chinese import arbitrage window closes," the consumer said.
Chinese domestic alumina prices rallied in Q4 2022 and early-2023 on the back of winter stockpiling and refinery cuts in the wake of environmental audits and bauxite supply inconsistencies. However, further smelter curtailments and new refining capacity have capped price gains this year and started reversing the uptrend in the second quarter.
Domestic prices in China were mostly in a deadlock through the first quarter despite smelter curbs in the country's south and rising refinery operating rates in the north.
Chinese market participants expect market fundamentals to pressure prices going forward in 2023. New refining capacity coming online and wavering offer levels have pressured domestic alumina prices in China, while downstream demand from aluminum smelters has been sluggish on the back of prior smelter curtailments.
"There are more producers seen lowering offers now as compared to the first quarter when prospective sellers were mostly traders. [That] could indicate a less optimistic outlook in the near term," a Chinese trader said.
A growing gap between northern and southern Chinese alumina prices could boost market interest in transporting alumina from Guangxi and Guizhou in the south to northern and western regions, such as Xinjiang, Inner Mongolia, and Shandong, further pressuring prices in the north.
The Brazilian alumina differential to Australian material, commonly known as the Atlantic differential, mostly fluctuated at a premium in the $20-$30/mt range in the first quarter of 2023, even as freight costs fell after pandemic restrictions eased.
A narrowing freight differential between the Atlantic and Pacific basins and smelter curtailments have capped the Brazilian alumina premium to Australian material, while surprise refinery cuts in Brazil have kept its decline in check.
Platts assessed FOB Brazil alumina at a $25/mt premium to FOB Australia on April 13.
S&P Global reported earlier that the freight differential between the Atlantic and Pacific could become less meaningful when considering the Atlantic differential as time risk and carrying costs between the two basins could become more prominent.
"I think that many people are still looking to derisk by securing cargoes way in advance as demand will creep back with smelter restarts if energy prices don't spike again, as well as due to the ongoing Kwinana curtailment in Australia," a producer based in the Atlantic said, referring to several spot deals for cargoes loading further out.
A European consumer said power prices may have eased in Europe due to falling demand, but that trend could reverse if energy-intensive industries restarted curtailed operations in current circumstances.
"I don't think there will be any significant smelter restarts this year because energy prices remain elevated," the consumer said. "Although [European smelters] managed to avoid the worst last winter, power prices are certainly by no means at decent levels for most of them."
In January, French primary aluminum producer Aluminium Dunkerque restarted some of the pots at its Dunkirk smelter that were idled in September. "But [Dunkerque] did not cut as much output in the first place compared to San Ciprian or Slovalco," the consumer said, indicating that curtailed smelting activity in Europe may take some time to come back.
#TradeReview: Q2 #alumina balance hinges on supply disruption risks, lackluster #aluminum demand
— S&P Global Commodity Insights Metals (@SPGCIMetals) April 18, 2023
🔸Tightness in Atlantic Basin supports Brazilian premium
🔸New refining capacity to pressure #Chinese alumina
📰Here's the latest @SPGCIMetals trade review: https://t.co/10xGjPhc3Opic.twitter.com/ObqAPvPPqD