Australia gas blast highlights alumina power impact

LONDON, June 6 - A gas explosion in Australia this week is unlikely to have a direct impact on alumina, but if future production is hit by rising electricity costs then prices could rise, traders said. Australia accounts for some 22 percent of the global alumina capacity, with total capacity this year at around 21.5 million tonnes, according to London-based metals consultancy CRU. "The physical impact will not be immense because the plants have back-up diesel generators that they will switch to immediately so there will hardly be any physical loss of production," a European alumina trader said. The gas was cut off on Tuesday to Western Australia state after two pipelines feeding offshore gas ruptured, causing an explosion at the Varanus Island gas processing plant operated by Apache Energy, a unit of U.S-based Apache Corp . Apache Corp has said it could take two months for partial operations at the gas export terminal to be resumed. The temporary energy solutions were costly, traders said, and if it takes a long time to get the power supply back up it could force production cut backs -- bolstering alumina prices. "If it ends up knocking out production for a couple of weeks then that will have an impact ... then we could see prices back up," CRU analyst Kristine Veitch told Reuters. Spot alumina traded currently at around $420 per tonne, supported by rising bauxite and power costs, traders said. Bauxite is the raw material used to produce alumina, and alumina refineries make the energy-intensive metal aluminium. "The market, especially outside China, is fairly tight at the moment as we are waiting for the Alunorte expansion," CRU's Veitch said. The expansion of the alumina refinery Alunorte in Brazil, controlled by miner Vale , will make it the world's largest with an annual capacity at 6 million tonnes when the third and last expansion is finalised late 2008. CRU's Veitch said the alumina market had been in balance in the first half of this year, but was expected to move into surplus for the second half due to the Alunorte expansion. In 2009, the market would be showing a fairly large surplus. RISING COSTS Rising bauxite and energy costs across the world are already squeezing the margins at the alumina refineries. "Demand from China has increased so significantly that bauxite prices in that region have rocketed, pushing up operating costs at many the Chinese refineries," Veitch said. This had had a knock on effect on global bauxite prices. Alumina Ltd , which has three joint ventures producing alumina with Alcoa Inc , said the gas outage should not affect its output of 8 million tonnes a year. "Production hasn't been cut back," spokesman Ken Dean said on Wednesday. The Alcoa World Alumina joint venture gets about 25 percent of its gas supply from the Varanus plant but can replace that with diesel, he said. "It will have a marginal cost impact, because the cost of diesel is higher than for the contracted gas," said Dean. Source: Reuters