Alumina swings to big interim loss

Alumina Ltd expects the short-term outlook to remain volatile, but flagged an end to China's control over aluminium prices after swinging to a big loss in the first half of the year.

For the six months to June 30, Alumina posted a net loss of $14.6 million, compared to a $67.7 million net profit in the previous corresponding period.

The company has declined to pay a dividend for the period after it paid a final dividend of US three cents a share in February.

Alumina chief executive officer John Bevan said that given the current volatility in external markets, the company’s cash flows and balance sheet are being conservatively managed.

Non-chinese producers such as Australia's Alumina and Rio Tinto are hurting from China's policy in recent years of over-producing aluminium to drive down the alumina price and get cheaper input costs.

The price of aluminium has fallen 18 per cent from a year ago to about $US1,835 a tonne and was sluggish before that when other commodity prices were booming.

Mr Bevan said China was not producing enough of its own bauxite rock to process alumina - which is then processed into the metal, aluminium.

It imports one-third of its bauxite but those imports have plunged 93 per cent since June because chief supplier Indonesia is unhappy with prices and has started greatly restricting imports and slapped extra taxes on them.

This would open up opportunities for Alumina with China forced to buy aluminium imports at a higher price, Mr Bevan said.

Aluminium is the most widely used metal in the world outside iron and demand was still growing, Mr Bevan said.

"However current prices have resulted in a significant portion of non-Chinese smelters operating below cash break-even," he told reporters.

"While the short term outlook remains volatile, we are encouraged by the continued strong physical demand for aluminium and evidence of some positive catalysts for improved alumina pricing are emerging," he said.

Alumina's high cost, high energy intensive aluminium smelters in Victoria are losing money and Mr Bevan flagged further production reductions in the short term.

Melbourne-based Alumina's only earning asset is its 40 per cent stake in Alcoa World Alumina and Chemicals (AWAC), with the world's biggest aluminium company Alcoa holding the remainder.

“AWAC has modest capital requirements for growth capital and equity investment in the second half," Mr Bevan said.

“While the short-term outlook remains volatile, we are encouraged by the continued strong physical demand for aluminium and evidence of some positive catalysts for improved alumina pricing are emerging."

JP Morgan analyst Lyndon Fagan said a major concern for the market was a 44 per cent increase in Alumina's net debt to $US602 million.

"We're not predicting a dramatic improvement with prices in the near term and on that basis AWAC is likely to continue being a marginal business over the next six months," he told AAP.

The company's alumina refineries – as distinct from aluminium smelters – are cashflow positive but there was a weak earnings before interest, tax, depreciation and amortisation (EBITDA) result of $161 million compared to $611 million a year ago.

Alumina pricing has been linked to the aluminium price, keeping it weak, but has moved to independent spot pricing by 30 per cent helping to deliver more value.

Morningstar analyst Mark Taylor said he was positive on the company's long-term prospects due to that "de-coupling" of prices.