TRADE REVIEW: Alumina to be pressured by improved supply in Q3; Australian output cuts to limit decline

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 has begun the third quarter on a softer note, and prices could see some pressure over the rest of Q3 as unanticipated supply disruptions in the Pacific have begun easing, although the full curtailment of production at the Kwinana alumina refinery in Western Australia would limit sharp declines.

Spot availability of alumina has also returned in recent weeks, further contributing to Alumina prices easing thus far in Q3.

Alumina prices had risen swiftly in Q2 due to unexpected supply disruptions related to shipment delays out of India, a declaration of force majeureon alumina exports from Rio Tinto's Gladstone refineries in Australia after issues with the Jemena-operated Queensland Gas Pipeline, and the planned output curtailment that progressed in Western Australia throughout the quarter.

Platts, part of S&P Global Commodity Insights, assessed benchmark Australian alumina at $478/mt FOB on July 19, down from the year-to-date peak of $510/mt FOB in June, while the FOB Brazil Atlantic Differential stood at a $29/mt premium, up from the sub-$20/mt levels earlier in the year.

Indonesia in spotlight

The Alumina market also saw some discussions in early July about a potential easing of Indonesia's bauxite export ban. This came after a similar renewal of Indonesia's export licenses for copper concentrate following the country's recent general elections.

It remains unclear whether the ban will be eased, but there would be added pressure on the bauxite market should the development materialize.

Indonesia, a key global bauxite miner, restarted a ban on bauxite exports in June 2023 to build higher-value production chains in the country as part of its "downstreaming" economic reform strategy. The country's domestic bauxite supply is now at a surplus and its 4 million mt/year smelter-grade alumina refining capacity is unable to process all the mined raw material.

As a result of the ban, imports of Indonesian bauxite by China -- the world's largest importer of the commodity -- had virtually ceased as early as April 2023.

China's appetite for overseas material has grown over the past year amid persistent mining challenges domestically, with some bauxite miners and prospective sellers keen to capitalize on higher prices. Import volumes have remained above 10 million mt since November 2022, showed customs data.

Platts assessed the Chinese domestic alumina price at Yuan 3,915/mt ($550/mt) ex-works Shanxi July 19, up from Yuan 3,180/mt EXW at the beginning of the year but slightly down from the year-to-date high of Yuan 3,950/mt EXW in May, Commodity Insights data showed.

Market participants said that an easing of the export ban could relieve China's bauxite supply concerns, while providing the Indonesian government a way to incentivize local alumina investments through the quota grant mechanism.

The participants added that bauxite export quota grants to firms constructing or expanding alumina refineries in Indonesia could also be a plausible scenario, akin to the copper industry, but maintained that there are currently no known changes to policy.

Indonesia will also see its alumina refining capacity grow by the end of the year, with PT Borneo Alumindo Prima (BAP) and PT Borneo Alumina Indonesia (BAI) slated to commission their new alumina plants at some point later in the year.

Once they are fully operational after 2024, the plants will raise Indonesian refining capacity by 2 million-2.5 million mt/year to over 6 million mt/year.

Meanwhile, the newest Indonesia Huaqing aluminum smelter, a joint venture led by China's Tsingshan Group and Huafon Group, is planning to double smelting capacity to about 500,000 mt/year by end-2024, according to sources close to the matter.

Some participants said that the new alumina refining capacity in Indonesia will likely come online earlier than the aluminum smelting capacity, leading to a net increase in alumina supply for some time.

On a spot basis, Indonesian alumina is currently valued at a premium of $8-$12/mt to Australian alumina, with most of this premium attributed to relative freight savings to major end destinations deliverable for both origins, according to trade participants and transaction prices seen for similar loading periods and Handysize volumes.

Chinese, Atlantic basin activity muted

Chinese domestic alumina prices surged in Q2 on hydro-powered aluminum smelter restarts in Yunnan, which was largely seasonal and expected in line with rainfall schedules, as well as limited raw materials due to bauxite mining challenges amid environmental inspections. These factors remain in play, keeping spot supply tight and domestic prices at year-to-date highs since May.

Meanwhile, Atlantic alumina demand has seen a surge amid ongoing repairs at the Jamalco port following Hurricane Beryl, as well as Trimet's gradual restarts of curtailed aluminum smelting capacity.

For pricing cues in Q3, market participants will likely keep an eye on whether Queensland Gas Pipeline flows return to full capacity, which would affect supplies to Gladstone alumina operations, and whether Indonesian projects will be commissioned as per schedule.