Latest Nalco tender points to sliding alumina price

The latest spot tender of alumina by Indian producer Nalco confirms that alumina prices have come off sharply from their Q2 2007 peaks.

The tender went for $354 per tonne, basis fob Indian port. That's a long way off the previous tender price of $423 at the end of April. However, it's questionable whether that last one was truly representative of the market. It caused some surprise at the time—not least to Nalco itself—with suggestions it represented a new player over-bidding to ensure it got the material.

But, that said, two spot tenders in March went for over $400 and the most recent one went for the lowest price since January.
It's noticeable that cif China (duty unpaid) prices never responded to the high price of the Nalco tender in April. Material continued to be offered at $410-420 per tonne through May and only now have offers edged lower to $390-400, according to our friends at Platts (see item below).

Platts also picks up an emerging de-linking of international prices and cif China prices. That's a function of the country's own soaring alumina production and the accompanying reduction in demand for imported material, particularly spot material it seems.

China's imports of alumina fell by 16.7% year-on-year in the first five months of 2007 and it seems that more of what is entering the country is doing so on longer-term contracts. This is, of course, the key driver of lower international alumina prices.

Nalco officials have said they are comfortable that the most recent tender at $354 is representative of the current spot market, noting that fob Australia prices are currently in a $340-360 range.

It remains to be seen whether more price weakness is pending. Much will depend on whether Chinese spot demand for imported material will reappear or whether we're entering a period of structural decline in the country's imports.

Limiting the downside is the fact that some swing alumina capacity has already been idled in anticipation of oversupply this year.

Alcoa said in January it had already taken down one of six digesters at its Point Comfort refinery in Texas, in effect cutting operating rates to 85% of the plant's 2.3 million tpy capacity. The company has described Point Comfort as its “flex capacity” and it has already been flexed. Similarly, fellow US producer Ormet mothballed its 600,000tpy Burnside alumina refinery at the start of the year for similar reasons.

Figures from the International Aluminium Institute showed global (non-China) metallurgical-grade alumina production falling by 2.7% quarter-on-quarter in Q1 2007 with a 10.6% reduction in North American production.