Prices for aluminium raw material alumina surge

Melbourne (Reuters): Prices of alumina, the raw material for making aluminium, have surged after Rio Tinto said it could not fulfill supply contracts because of US sanctions on United Company Rusal, adding to a crunch rippling through the aluminium supply chain.

Rio said it was in the process of declaring force majeure on Friday (13 April) for certain customer contracts that likely include alumina shipments from a refinery it operates with Rusal in Australia, bauxite shipments to a Rusal alumina refinery in Ireland, as well as alumina from that refinery to smelters in Europe.

Force majeure is a legal term describing situations when a contract cannot be fulfilled because of forces beyond a company’s control.

Alumina is a compound extracted from bauxite ore that is then smelted to form aluminium.

COMEX alumina futures for delivery in May jumped 15% on Friday following the Rio curtailment.

The futures are up 22% since 6 April when the United States imposed the sanctions on Rusal as part of broader sanctions against Russian companies and owners in response to allegations of Russian government interference in the 2016 US presidential election. Prices for spot physical cargoes of alumina from Australia are $ 550 per tonne, said two traders that participate in the market yesterday (18 April), but that was likely to rise.

The Rio announcement and the Rusal sanctions add to global alumina supply constraints after Norsk Hydro’s Alunorte, operator of the world’s biggest alumina refinery, was ordered to shut half of its output amid an investigation into allegations the site contaminated local water supplies.

Alunorte and Rusal, the world’s second biggest aluminium producer, account for 11% of global alumina production.

Internally, Rio Tinto’s Dunkirk smelter in France, which buys alumina from Rusal’s refinery in Ireland, has only three weeks of alumina stockpiles, France CGT Union at Aluminium Dunkerque official Johan Vlietinck told Reuters. The company is searching for alternative supplies, he said. The disruption to the supply chain and the higher alumina prices will spill over to semi-manufactured aluminium and ultimately hit manufacturers of products such as beer cans, cars and construction materials.

“This is going to be domino effect all over the place,” said AZ Aluminium (China) Managing Director Paul Adkins. “It’s just a total supply equation -- there’s not enough to go around. That’s going to have a knock on effect downstream.”

It takes around 2 tonnes of alumina to make 1 tonne of aluminium.

Global aluminium prices rose to their highest since September 2011 yesterday, climbing to as much as $ 2,445 per tonne.

“Phones have been ringing off the hook with people looking for extra metal,” said a source at a smelter in Asia. “They are looking for any extra tonnes, even just a few hundred.”