Alcoa notifies its alumina customers of force majeure event

Global aluminum giant Alcoa has notified its alumina customers of a force majeure, given the impact of reduced natural gas supply to its operations in Western Australia, an Alcoa spokesperson said by email.

Alcoa said Jan. 9 that its Kwinana alumina refinery in Western Australia cut production by about 30% due to a gas shortage in the state and had temporarily switched to diesel Jan. 6 to power its Kwinana and Pinjarra alumina refineries.

Alcoa reverted to use gas to fuel the powerhouse boilers at the two alumina refineries in Western Australia on Jan. 12 following an increase in gas supply to the domestic gas market.

According to market participants, customers started receiving notice of the force majeure past midnight New York time on Jan. 12 (past 1 pm Singapore time).

"We actually do not have any shipments from WA for the remainder for January, so it could be the case that the curtailment is expected to extend into February," a customer source said. "Or it could be that they just sent the same notice to all of their WA alumina customers, regardless of when your shipments are."

Alcoa is due to report Q4 earnings on Jan. 18, which could provide further updates on the company's production guidance and outlook following the disruptions to its WA operations.

Market participants continued to assess the impact on alumina prices in response to the force majeure and the Kwinana refinery curtailment, though sources were generally in agreement that this unanticipated development would likely pose upside risks to prices in the near-term.

Platts assessed benchmark Australian alumina at $348/mt FOB Jan. 13, up $18/mt from $330/mt at the start of January, S&P Global Commodity Insights data showed.

"I think the force majeure didn't come as a surprise when we received notice, given that we knew it will take some time for the gas situation in WA to stabilize and even more time after that for Kwinana to restart the curtailed portion," a trader said.

S&P Global reported Jan. 9 following news of the curtailed output that force majeure was "not off the table", citing sources from Alcoa's global alumina sales and marketing team.

When S&P Global enquired as to how long it will take the curtailed refinery capacity to recommence after the gas plant restarts, the sources said it would be approximately 10-14 days "in an ideal situation." However, they added that developments remained a "moving target" given the uncertain situation at other affected gas facilities in Western Australia.

A producer said the curtailment affects about 45,000 mt/month of smelter-grade alumina output assuming that the Kwinana refinery was operating at full capacity prior to the cut, and that prices could move up to the $370s/mt FOB Australia and above on the back of the curtailment. The refinery has a nameplate capacity of 2.2 million mt/year, of which 85% of the output is smelter-grade alumina and the remaining production non-metallurgical alumina.

A consumer in the Middle East said they were in agreement with broader market views of alumina prices being supported on the back of the Kwinana curtailment but noted that Chinese import demand for spot Australian material had yet to pick up despite the theoretical import arbitrage window being open, which could continue to limit the upside risks to Australian prices.

"If the arb window closes due to higher Australian prices, it could even be the case where 2-3 cargoes initially destined for China be offered to other buyers instead, which was what happened earlier in some months in 2022." the consumer added.

Gas supply

Market sources from Alcoa said the subsequent restart of curtailed capacity at the Kwinana refinery would be "contingent on gas security" and did not have an expected timeline for the resumption of regular alumina output at the plant.

Among the gas plants in Western Australia that are facing disruptions are Chevron's Wheatstone plant, as well as Santos' John Brookes facility at Varanus Island and Devil Creek facility. The Wheatstone plant, which was shut Jan. 5 due to an equipment failure, restarted gas supply to Western Australia's domestic market on Jan. 11.

Despite the increase in domestic gas supply following the Wheatstone restart, the alumina output curtailment at Kwinana remains in place as "Santos continues to experience production constraints at two gas facilities, resulting in ongoing uncertainty in the gas market," S&P Global reported Jan. 12.

According to Western Australia Gas Bulletin Board outlook data for Jan. 15 released by the Australian Energy Market Operator, the Varanus Island facility is set to produce 250 TJ/day Jan. 27, up from the current 40 TJ/day.

The Devil Creek facility is scheduled to produce 200 TJ/day Jan. 22 from the current 90 TJ/day but will slash output again by more than half by early February, the data showed.