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Trade review: Alumina set to trail China market in Q4 after Sep price surge

Highlights

Atlantic turmoil drives prices higher

China grapples with power restrictions, energy targets

Market expects upward momentum to continue in Q4

This report is part of the S&P Global Platts Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, alumina, steel and scrap, and metallurgical coal. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

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Alumina prices are expected to trail Chinese domestic prices closely in the fourth quarter after surging in late Q3 on the back of Atlantic disruptions, power restrictions in China and a rise in manufacturing costs.

The Platts Australian alumina daily assessment soared 59% through Q3 to close at $455/mt FOB Sept. 30, with the bulk of the gains recorded in September after prices hovered around $300/mt for most of July and August. In a similar trajectory, the Platts Shanxi daily alumina assessment surged 56% from July to close at Yuan 3,900/mt Sept. 30.

Alumina prices were under 13% of LME aluminum values for much of the quarter, before rising close to 16% in late September.

"The eventual gains we saw in alumina prices are not surprising, given that prices have been lagging as a percentage of LME aluminum values for a few months now, as well as that of Chinese domestic prices," a consumer in China said in late September, referring to the Q3 spike in Australian alumina prices.

Atlantic disruptions tip balance

The Atlantic market grappled with supply disruptions in Q3, including a fire at the Jamalco refinery in Jamaica, damage to a bauxite unloader at Alumar in Brazil and a planned curtailment at the Noranda refinery in Gramercy, Louisiana due to Hurricane Ida.

Market sources deemed the Jamalco outage the most severe disruption. The facility is only expected to resume about 50% of production in mid-2022 after a major fire on Aug. 22 brought operations at the 1.4 million mt/year refinery to a standstill.

"That's going to make the Atlantic very short for the foreseeable future," a producer based in the West said following Platts' report on the plant's resumption timeline, which sources said was slightly longer than expected.

The Jamalco outage in late August marked the beginning of the upswing in alumina prices seen in September, with the Platts Brazilian alumina premium to Australian tons surging 67% within a month.

Market players with considerable exposure to the region rushed to cover their positions, and producers had to ensure that they had sufficient on-hand stock to fulfill their term contract commitments, bringing about further supply tightness on a global scale.

Notably, two deals concluded barely two weeks apart in September traded at a difference of $75.90/mt, with the latter concluded at $457/mt FOB Western Australia, underscoring the accelerated price surge in the month on the back of Atlantic tightness and skyrocketing Chinese domestic alumina prices.

China's energy policies roil markets

Across China, environmental audits and power restrictions have ramped up in recent months. Production cuts brought about by renewed energy consumption targets and electricity supply shortages pushed prices sharply upward in Q3.

"The market appears to be going haywire due to nearly simultaneous announcements and renewed restrictions across China in the past week or so," a producer said in late September, referring to the country's updated "dual control" policy on energy consumption and intensity, and the abolishment of preferential power tariffs for the aluminum industry.

Alumina imports into China softened 25.2% on the month in August due to aluminum production curtailments and high freight fees but remained at the second-highest level to date in 2021 at 394,150 mt, behind only that of July, according to China customs data.

"The figures are underpinned by China's sustained strong demand for alumina," a consumer in China said in late September. The source attributed the continued demand to the upswing in aluminum prices and limited domestic alumina production due to power restrictions.

Dozens of sources in China, including consumers, traders and producers, said domestic prices had yet to peak and expected further increases while the industry continues to react to the new policies.

Outlook for winter unclear

Market participants across the aluminum chain are bracing for an unpredictable winter, and the jury is still out on how they will be impacted by a conflux of factors ranging from tougher power restrictions for businesses to the higher prices of inputs such as coal and caustic soda.

Heightened demand for energy has resulted in a shortage of coal and has sent electricity prices soaring globally as economies exit lockdowns. Governments are under pressure to secure sufficient electricity for households in winter, and the energy-intensive aluminum industry could face additional setbacks in the form of more power restrictions.

"The increase in coal-powered electricity prices could still support near-term alumina prices, even if smelters face production cut orders," a trader said late September.

Sources are also eyeing new capacity for further market direction. The 1.5 million mt/year Anrak refinery in Visakapatnam, India is slated to be commissioned in Q4, with commercial sales commencing the following quarter.

In Indonesia, the Well Harvest and Bintan Alumina refineries, with 1 million mt/year of new capacity each, have postponed their timelines for commercial sales to early 2022, with sources citing the domestic pandemic situation as the main reason.

The 228,000 mt/year San Ciprian smelter in Spain has declared force majeure due to an indefinite strike, and a full resumption of production remains to be seen.

Meanwhile, the gradual full resumption of the 432,000 mt/year Kitimat smelting operations in Canada is expected to boost demand for alumina in the region. Production was previously reduced to about 35% of capacity following a labor strike in July.