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06 JANUARY 2017 AL CIRCLE

Integrated aluminium companies to benefit from rising alumina prices

EDITED BY : BEETHIKA BISWAS 2MINS READ

Alumina prices driven by growing Chinese demand and tight supply climbed significantly to touch US$351 per tonne in 2016- the highest in the last two years. The price graph picked up momentum from August onward with the upturn in all commodity prices.  According to the commodities forecast, the alumina price will settle within an average of US$310per tonne in first quarter of FY2017.

Aluminium’s value chain starts with bauxite mining and moves to alumina refining before it is processed into raw aluminium.

Companies such as Rio Tinto, Norsk Hydro Alcoa and Nalco that have both alumina refining and aluminium smelting operations are going to be benefitted due to high alumina prices. Alcoa was the top alumina producer in 2016, with a strong first-quarter cost position on the global cost curve.

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Alumina prices have grown over the last couple of months primarily due to two key factors: First, A supply deficit like situation in 2016 following Chinese curtailments, second, higher coal prices.

Higher raw materials prices raised production costs for Chinese aluminium smelters as some smelters rely on imported alumina and coal. As input costs have surged, aluminium prices have gotten a natural boost.

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Integrated producers also profit from selling bauxite and alumina along with primary aluminium. The companies’ 2017 earnings are expected to get a boost from higher alumina prices. Alcoa has already forecasted an earning boost. National Aluminium Company (Nalco), the world's second lowest cost producer of alumina is expected to benefit from the rising alumina price. Global alumina benchmark price has risen around 14% over the past month and 30% in three months. This should boost the company's December quarter results.

According to commodity analysts, alumina price may rise by another 17-23% in 2017 as more Chinese aluminium smelters become operational. This is expected to increase alumina deficit to 4.8 million tonnes (MT) in FY17 and over 6 MT in FY18.


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EDITED BY : BEETHIKA BISWAS 2MINS READ

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