TRADE REVIEW: Alumina to be supported in Q2 by refinery curtailments; metal sanctions on Russia in focus

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 , nickel 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.

The global alumina market is expected to be supported by lower output in the second quarter amid ongoing refinery cuts, while the latest sanctions by the US and the UK on Russian aluminum are likely to cause potential trade flow disruptions, market participants said.

While Australian alumina prices were largely rangebound in the $360s/mt FOB across Q1 after having spiked in late December to early January, the planned full curtailment of the Kwinana alumina refinery in Western Australia, beginning in Q2, has led to higher spot prices in April so far.

This, coupled with the fresh ban on new Russian aluminum entering warehouses of the London Metal Exchange and Chicago Mercantile Exchange effective April 13, is also expected to keep the global aluminum market on its toes as more details emerge.

The ban would be high up on the agenda of market discussions in the near term as participants navigate the complex trade flows in the backdrop of the Russia-Ukraine war.

Platts, part of S&P Global Commodity Insights, assessed benchmark Australian alumina at $378/mt FOB on April 17, up from $350/mt FOB at the start of the year, while the FOB Brazil Atlantic Differential (AD) stood at a premium of $25/mt, up from the sub-$20/mt levels earlier in the year.

The Chinese domestic alumina price was assessed at Yuan 3,260/mt (approximately $456/mt) ex-works Shanxi April 17, up from Yuan 3,180/mt EXW at the beginning of the year, but down from the year-to-date high of Yuan 3,370/mt EXW in late February.

Spot liquidity remains robust entering Q2

Spot deals were reported in about every two Platts assessments on average in Q1, building on the robust spot liquidity seen since Q4 2023.

However, the increase in liquidity over the past months has taken market participants by surprise, especially in the backdrop of unexpected output disruptions and softer ex-China production stemming from planned curtailments.

Liquidity was boosted partially amid a larger pool of market participants reporting to Platts. This included long-time market participants formally reporting to Platts for the first time since the inception of the Platts Alumina Index (PAX) and new firms participating in the global alumina market.

Nearly 50% of the total reported spot volume in Q1 continued to involve Australian alumina, mirroring the general trend observed across 2023.

Indian-origin volumes rose to the second place, representing one-fifth of the total volume, topping Brazil from the previous quarter, while Atlantic trades slipped in the quarter to below 20% of the tally, S&P Global data showed.

From a global perspective, alumina originating within Asia Pacific constituted close to around 85% of the spot trade volumes and those from the Americas and Europe formed the rest in Q1.

Refinery disruptions, Chinese smelter restarts

As of April 17, market discussions and trading sentiment were currently dominated by the planned curtailment of the Kwinana Alumina Refinery, with the production to be fully halted by Q3.

The refinery, which has an annual nameplate production capacity of 2.2 million mt, had been operating at approximately 80% since January of 2023 prior to this planned curtailment.

The market has already begun pricing in the impact of the curtailment on shipments and deliveries from the refinery, with volumes of around three to four standard smelter-grade cargoes per month expected to be taken out further from the seaborne market.

As a result, market participants would keep an eye on whether Alcoa would step up procurement of third-party alumina from non-Australian origins for delivery to its own aluminum smelters, given that some of its prior supply contracts with customers may have specified the delivery of only Australian alumina, which may become relatively more scare in supply due to the curtailment.

Meanwhile, market participants would also monitor updates on the restart timeline of curtailed hydro-powered aluminum smelting capacity in Yunnan, southern China, pending the return of the high-water season.

Yunnan is relatively richer in hydropower generation than other regions in the nation but is likely to face a tight electricity supply in 2024 amid expectations of a power shortage reaching 27 billion KWh, Kunming Power Exchange Center data showed.

To counter supply issues, Yunnan authorities at the end of March allocated power supply for the resumption of curbed primary aluminum capacity in Q4 2023, equivalent to over 500,000 mt/year of smelting capacity, according to Chinese sources.

However, smelters would await a firmer assurance from the authorities on whether they can produce continuously before restoring more pots, as it is costly to shut down and restart electrolytic tanks.

As such, Yunnan smelters might not be able to restore curtailed smelting capacity on a large scale until May, when the hydropower supply is expected to regain stability.

The cuts beginning in early 2023 led to a surge in China's primary aluminum imports, with Chinese customs data showing a year-on-year rise of 131% to 1.54 million mt by year-end. The volume exceeded those of Japan in 2023, buoying primary aluminum premiums across Asia.

Atlantic Basin muted

Activity in the Atlantic Basin was relatively quiet at the end of Q1. Although the market's attention earlier in the year was on the oil terminal explosion in Guinea, the impact following the incident was muted.

Sources said that freight differentials between the Pacific and the Atlantic remain supported by global shipping dislocations due to the Red Sea conflict.

Meanwhile, smelter restarts and curtailments in the Western hemisphere are less likely to hold surprises, with most upcoming activities already being announced much earlier. However, several sources said that moderating power costs and higher LME Aluminum prices could make a stronger case for restarts.

The LME Aluminum three-month price closed at $2,564/mt April 17, up 8.5% from $2,364/mt a year ago, exchange data showed.