Nalco mulls reviving long term alumina contracts with its buyers after the drop in alumina prices

National Aluminium Company Ltd (Nalco) plans to restructure its alumina sales strategy in international markets. The alumina producer, which has been selling its surplus alumina in spot markets instead of its earlier strategy of long term contracts, is planning to switch over to long terms contracts again.  

In FY 2018-19, Nalco sold over 95 per cent of its exportable alumina in international spot markets as prices had rocketed to over US$600 per tonne lifting its profits. Leveraging on higher alumina prices, Nalco registered its highest ever realisation of over $700 per tonne from alumina sales. Sanctions on Rusal and 50% capacity cut at Hydro Alunorte refinery lifted up the prices in 2018.

However, alumina prices have consolidated this year with the lifting of sanctions on Rusal and Alunorte coming back to its peak capacity. International alumina prices have dropped more than 50% YoY to about US$ 300 per tonne at present. Nalco registered a quarterly loss of INR 28 crore in Q2 because of muted alumina prices. Alumina exports have been its revenue driving business so far as its metal production has not been able to drive profits because of higher input costs. Currently, with both alumina and aluminium prices going downward; Nalco is planning to revive long term alumina contracts with its buyers.

“Hardly 0.3 million tonnes of our surplus alumina in FY19 was liquidated via long-term bilateral pacts. We preferred to sell an overwhelming quantity of alumina in spot markets as prices were on a roll. But given the sobering price trends of alumina, we may do rethink on our strategy and divert more quantum of alumina to long-term sales”, said a Nalco source.

Historically, alumina in the global markets has traded at 14-15 per cent of the spot aluminium prices, which shot up in 2018 to 30% because of Rusal sanctions and Alunorte issue. Currently, it is back to the 15% level in the spot market.