Hydro’s production cut and US Sanctions on Rusal could steer insufficient aluminium supply

Two back-to-back incidents in the aluminium industry, started with Norsk Hydro’s production cut followed by the US sanctions against Russian aluminium oligarch Oleg Deripaska-led Rusal could lead to aluminium supply starvation in global market, said Hydro’s chief executive on Monday April 16, 2018.

The situation may get worsen further if Hydro’s production cut at its aluminium plant Albras in Brazil continues longer, in addition to an unresolved dispute at its nearby Alunorte alumina refinery. It may even result in an output cut at Norwegian smelter, which receives alumina from Alunorte, said Svein Richard Brandtzaeg.

“This is not positive for the aluminum industry. We’ve got long-term customers seeking stable relations, and our car-making customers are particularly worried in this situation, both by the prices but also by the cost of delivery premiums,” he added in an interview.

While aluminium price has already soared on London Metal Exchange and reached the highest record overnight on Monday, continuing a spike that began with the US sanctions against the world’s second-biggest aluminium producer UC Rusal, aluminium deprivation is likely to appear resulted from alumina shortage in the market and ban on Rusal’s aluminium, unless the latter find new markets soon, commented Brandtzaeg at Hydro’s headquarter. Alunorte and Rio Tinto’s declaration of force majeure on Rusal-linked contracts have not contributed any less to aluminium price hike either.

However, although Rusal could potentially maintain its production by increasing exports to Asian countries, that may cause a disruption to regional market balance, he added.

“The metal would remain part of the global balance and we’d have to expect more exports from Asia into our European markets, particularly since China faces restrictions on exports to the U.S.,” Brandtzaeg said.