Alumina Limited reports profits for FY2017; expects to be benefited by import restrictions in 2018

Alumina Limited released its full year 2017 results on Thursday, 22 February 2018. The company reported a statutory net profit after tax of US$339.8 million for the full-year 2017 in comparison to a net loss of US$30.2 million in 2016. Excluding special items net profit after tax would be US$363.1 million.

Alumina declared a final, fully franked dividend of 9.3 US cents per share. Commenting on the results, Alumina’s Chief Executive Officer, Mike Ferraro, said, “This has been an outstanding result for Alumina, after a period of difficult market conditions and hard restructuring decisions. We are now in a different phase during which the market fundamentals have strengthened and the exceptional quality of AWAC’s Tier 1 assets is clearly demonstrable in the result.”

He attributed the profits to the strengthening of alumina prices during 2017 as a result of solid demand, tightness in the Atlantic market and environmental and production policy reforms in China. Despite the pressure from higher raw material costs and weaker US dollar, AWAC managed its costs well leading to profits. This was the first full year of operation under the mended joint venture agreements with Alcoa. Net receipts from AWAC increased 42%.

The report says demand growth or alumina rose 7.7% in 2017. Alumina Ltd forecasts the global alumina market to remain generally balanced in 2018. Ferraro believes that the structural and environmental reforms of the alumina aluminium industry that started in China in 2017 would continue in 2018 and should reduce excess smelting and refining capacity in the country keeping the market tight.

Production from AWAC operated refineries was 12.5 million tonnes in 2017, down 0.1 million tonnes YoY. This was largely due to the curtailment of the Point Comfort refinery in 2016. This also led to a drop in alumina shipment to 13.1 million tonnes from 13.3 million tonnes in 2016.

Total EBITDA increased by US$1,239.2 million to US$1,632.7 million and margin for alumina refineries increased by $86 per tonne to US$137 per tonne. Net cash inflows increased to $1,037.8 million.

Alumina Limited boss Mike Ferraro is of the view that the proposed tariffs on aluminium imports to the U.S. could be a positive development for the company. Mr Ferraro said Alumina may sell more alumina into North America if Trump decides on one of the three tariff options proposed by the Commerce Department. If imports are restricted, more idled aluminium smelters are expected to reopen and that will drive the demand for alumina and Alumina Ltd “will probably sell more alumina into the US."

"Correspondingly outside the US you might have a reduction in alumina demand...it is quite complicated but I think it could be positive overall for us as producers, not necessarily for consumers in the US where the price could go up," he added.

Alcoa and Alumina Limited jointly own idled alumina refineries in Texas and Suriname which could be benefitted if domestic smelters restart operations and demand for alumina starts growing.