Aluminium prices climbed to a seven-week high after Norsk Hydro (OL:NHY) announced a major production cut at one of the world’s largest alumina refineries amid natural gas supply disruptions.
Prices rose nearly 2% on the London Metal Exchange (LME) to more than US$3,330 ($4,716) per tonne, their highest level since 22 June.
Key facility cuts output
The rally followed Norsk Hydro’s decision to temporarily reduce production at its Alunorte refinery in Brazil by 50% after disruptions to its natural gas supply.
Located in Barcarena, Pará, Alunorte is one of the world’s largest single-site alumina refineries, with annual nameplate capacity of about 6.3 million tonnes. Alumina is the key raw material used to produce aluminium.
“In response to the notification from the supplier of disruptions to the natural gas availability affecting Alunorte, the refinery has implemented contingency measures to mitigate operational impacts,” Norsk Hydro said in its statement.
Alunorte produced about 1.5 million tonnes of alumina in the latest quarter. Norsk Hydro estimates the production disruption will have a financial impact of between US$75 million and US$100 million.
The company plans to ramp production back up once gas availability normalises. Its supplier, CELBA, is seeking additional gas supplies on market terms, while Alunorte is also looking at alternative long-term sources.
War tightens aluminium market
The production cut adds further pressure to an aluminium market already disrupted by the war with Iran.
The Middle East accounts for about 10% of global aluminium production, with the conflict disrupting metal flows from the region and pushing prices and premiums higher.
While aluminium prices retreated following the initial weeks of the conflict, they have rebounded since late June. At the same time, inventories held in LME warehouses have fallen to their lowest levels in decades.
LME aluminium stockpiles have declined steadily this year to around 250,000 tonnes, their lowest level since November 1990, despite additional supply from China and Indonesia.
The Alunorte disruption also comes after Norsk Hydro warned that the global aluminium supply deficit could widen to more than 900,000 tonnes if trade through the Strait of Hormuz did not normalise.
Write to Jackson Chen at Mining.com.au
Image: Norsk Hydro
