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The Indian Firm That Stands To Gain From Global Alumina Supply Disruption

Norways’s Norsk Hydro plans to more than halve production at its Alunorte alumina refinery in Brazil for extended maintenance work

Molten aluminium is poured from a crucible transport and tilting vehicle into a furnace in the cast house unit of the Vedanta Ltd. Aluminium Smelter in Jharuguda district, Odisha, India. (Photographer: Dhiraj Singh/Bloomberg)
Molten aluminium is poured from a crucible transport and tilting vehicle into a furnace in the cast house unit of the Vedanta Ltd. Aluminium Smelter in Jharuguda district, Odisha, India. (Photographer: Dhiraj Singh/Bloomberg)

Analysts expect state-run National Aluminium Co. Ltd. to gain as one of the world’s largest alumina producers in Brazil will cut output by more than half for maintenance, potentially disrupting raw material supply.

Norway’s Norsk Hydro ASA, among the biggest aluminium producers, said it will reduce production at Alunorte alumina refinery in Brazil amid extended maintenance on a pipeline transporting bauxite from the Paragominas mine in the Latin American nation. Alumina production at Alunorte, which accounts for about 13% of the global demand, will fall to 35-45% of its full operating capacity during planned maintenance expected to last two months.

This development may not have an impact on Hindalco Industries Ltd., which is an integrated aluminium producer with its own alumina supply, but it may impact Vedanta Ltd. to some extent since part of its alumina requirement comes from third parties, Vishal Chandak, research analyst at Emkay Global Financial Services, told BloombergQuint. It’s a positive for Nalco, even if for a very short term, since the state-rum miner sells 80-90% of its alumina overseas, he said.

Shares of Nalco were trading 6.19% higher at 1:15 pm compared with a 0.44% rise in benchmark Nifty 50 on Wednesday.

Of the global Alumina demand of 23 million tonnes a year, about 3 MT is met by Alunorte, Amit Dixit, assistant vice president (research) at Edelweiss Securities, said. Assuming that the plant operates at 35-40% capacity, the total deficit in seaborne market would be at an annualised rate of 3 MT as Norsk Hydro would concentrate on meeting its own requirement first, he said. However, this is not expected to last long and the market would return to balance once the maintenance work is completed, Dixit said.

Prices of alumina, the key raw material for aluminium, had surged to a record in April 2018 after the Brazilian government ordered the Alunorte plant, located in the Amazon, to operate at half its capacity amid allegations of contamination of local water supplies, according to a Bloomberg report.

This time, however, the situation is likely to be different and a little more certain since Norsk Hydro’s statement suggests that work on plant will commence immediately, and operations are expected to resume within two months.