"In the short term, the bauxite and alumina industry has a challenge. We are suffering from low profitability, Johnny Undeli, head of Bauxite & Alumina told a gathering at the Metal Bulletin Bauxite and Alumina Conference in Miami last week.
"Today and for the next few years there is a risk of oversupply of both aluminium and alumina. We are suffering from market prices that are not sustainable. Therefore the fundamentals must become more important for the pricing of our products in the future," Undeli said.
Undeli was a keynote speaker in the conference. In the opening remarks editor Raju Daswani of Metal Bulletin stated that “production reductions in alumina refining appear to be imminent.” He asked when the first alumina refineries will have to cut back production.
Possible CAP postponement
Undeli said in the keynote speech that Hydro presently is reviewing a postponement of the huge CAP refinery project in Barcarena, Brazil. The project is seen as one of the most attractive in the industry and until now has been scheduled to start production in 2015.
"It is our responsibility to review the timeline of the project," he said, referring to Hydro as one of the large players in the market. Hydro is number four globally when it comes to bauxite mining, number five in alumina and number five in primary metal production.
He said that Hydro’s first year as operator and majority owner of the bauxite mine in Paragominas and the Alunorte alumina refinery has been a tremendous achievement. Production has been stabilized, and production volumes in Paragominas were up 23 percent in the second half of 2011 compared to first half of the year.
Rapidly increasing costs
His views were supported by Commercial Director Demian Reed of Rio Tinto Alcan, who stated that the industry’s costs are increasing rapidly and that more of the pricing mechanisms should be delinked from the aluminium price on the London Metal Exchange (LME) and instead reflect the fundamentals in the bauxite and alumina industry. Longer term, he expected strong growth and that the world consumption of aluminium will double in the coming 15 years.
2012 will be a challenging year
Hydro’s Senior Vice President Simon Storesund said in a presentation that 5.7 million metric tons of new alumina capacity is expected to come onto the market in 2012 and 2013.
"2012 will be a very challenging year for the bauxite and alumina industry. Several refineries are losing money already," he said. On the positive side, index pricing delinked from LME is gaining ground.
"In the short term, this development has been better for the smelters than for the alumina refineries. Index pricing has become widely accepted among our customers. We have seen a big shift the last 6-12 months. And a possible restriction in bauxite export from Indonesia to China could potentially be very bullish for the coming years," he said.