Aluminum Extends Rally After Brazilian Plant Cuts Output to 50%

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(Bloomberg) — Aluminum extended gains — and touched a seven-week high — after a key alumina producer said it was slashing production, adding to major supply-side disruptions for the metal this year.

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Norsk Hydro ASA said its Alunorte plant in Brazil had cut output to 50% of capacity after a supplier notified it of disruptions in the availability of natural gas. Alunorte is one of the world’s biggest producers of alumina, the key feedstock for aluminum smelters. The metal rose as much as 1.9% in London.

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Alunorte will ramp up alumina production to full capacity as soon as the availability of natural gas allows, Norsk said. CELBA, the gas supplier to the refinery, is owned by New Fortress Energy, a heavily indebted firm that’s undergoing a financial restructuring.

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The aluminum market has been roiled this year by the Iran war, disrupting flows of metal from the Middle East — which accounts for about a tenth of global production — and sending prices and premiums rocketing. Though prices retreated after the intense initial weeks of the conflict, they have rebounded since the end of June, and London Metal Exchange inventories have slumped to their lowest since 1990.

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On Monday, President Donald Trump laid out extensive new demands on Iran, including compensation for people killed by Tehran. The conditions, which are likely to be rejected by Iran, came after the Islamic republic reiterated its own requests for reparations as part of talks to wind down the conflict.

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The hardening positions on both sides point to a longer grind toward a deal, dimming hopes for a normalization of aluminum supplies. The region accounted for about a tenth of global output before the war.

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“Negotiations in the Middle East are not proceeding smoothly, which should provide some support for aluminum prices,” said Yan Weijun, head of nonferrous metals research at Chinese trader Xiamen C&D Inc. 

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Stockpiles of aluminum in LME warehouses have fallen steadily this year and are now near a quarter of a million tons, the lowest level since November 1990, despite new supplies from China and Indonesia.

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Norsk Hydro had warned last month that the annual global supply shortfall for the metal may widen to more than 900,000 tons if trade through the Hormuz wasn’t normalized.

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Aluminum rose 1.5% to $3,367.50 a ton on the LME as of 8:49 a.m. in London. Alumina futures closed up 1% at 2,724 yuan a ton on the Shanghai Futures Exchange.

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