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MOSL: ALUMINUM: Aluminum market getting tight on supply disruptions

Aluminum: Aluminum market getting tight on supply disruptions; Nalco is the best name to play the market tightness

 

Aluminum and alumina market dynamics have turned favorable after recent events, leading to supply vacuum of 2.8mtpa of metal (Rusal and Hydro) and 8mtpa of alumina (from the world's largest alumina refinery in Brazil owned by Hydro, and alumina refineries of Rusal in Ireland, Ukraine and Jamaica).

• US Rusal (Rusal) has been hit by the US sanctions, leaving it unfit for trading. Rusal accounted for nearly 6-7% of the world's aluminum production, most of which was exported, as local consumption in Russia is very low. Rusal can at best produce 1.5mtpa of metal, as it has only ~3mtpa of alumina capacity in Russia, which means nearly 2.5mt metal supply reduction from the global market.
• Rusal was also selling ~2mtpa and buying 1.5mtpa of alumina, with net long position of ~500kt before the US sanctions. Rusal owns about 4.8mtpa of alumina capacity in Ireland, Ukraine and Jamaica, whose operations are at risk.
• Alunorte (owned by Hydro), the world's largest alumina refinery with capacity of 6.2mtpa in Brazil, has been forced to operate at 50% capacity, as heavy rains have posed the risk of tailing dam breach and contamination of river water. Although an independent investigation has not found any contamination, it is only natural for the Brazilian authorities to turn cautious after having seen devastation from breach of Samarco's tailing dam a few years ago. Hydro has also cut 230kt metal capacity at its smelter, Albras, in Brazil, and announced force majeure for alumina supply.