Alumina shares peak on global production cuts

Alumina shares rose the most in almost seven years after Citigroup upgraded the stock, citing expectations that global production cuts can drive a recovery in prices.

The Melbourne-based producer, partner of Alcoa in the world's largest alumina producer, rose as much as 13 per cent in Sydney, the most since March 2009, and closed 11 per cent higher at A$US1.095, trimming its decline in the past 12 months to 44 per cent.

Alcoa, the largest US aluminium producer, forecasts an alumina deficit of 2.8 million tonnes in 2016 as a result of global production curbs, including at the Point Comfort refinery in Texas. The Alcoa World Alumina & Chemicals venture has taken about 3 million tons of capacity out of the market, Citigroup analysts including Sydney-based Clarke Wilkins wrote in a note dated January 12.

"The savage price fall is driving curtailment of production that should bring market into balance, driving a recovery in the spot price," the analysts wrote, upgrading Citigroup's recommendation to neutral from sell. The price of alumina tumbled 42 per cent in 2015, according to Metal Bulletin data.

Alumina is the only listed company to generate the majority of its earnings from bauxite and alumina. Bauxite is a mined material that's processed into alumina, an intermediate product that's further refined into aluminum.

Malaysia, which supplied more than 40 per cent of China's imports of bauxite last year after Indonesia imposed a ban on shipments in January 2014, is imposing a three-month ban on bauxite mining in Pahang, the largest producing state, amid an investigation into alleged corruption and complaints over environmental impact.

Alumina has a 40 per cent stake in Alcoa World Alumina & Chemicals with Alcoa holding the remainder. The venture has interests in bauxite mines and alumina refineries from Brazil to Western Australia.