High Prices, Scarcity, and Uncertainty Bedevil the Global Alumina Market Thanks to U.S. Sanctions on Rusal

High Prices, Scarcity, and Uncertainty Bedevil the Global Alumina Market Thanks to U.S. Sanctions on Rusal
King John's Castle, Limerick. Source: Wikimedia

Much of the focus of attention in the aluminium world regarding the fallout from United States government sanctions against Rusal has been focused upon their effect on raw aluminium, and rightly so. However, the bigger impact to date has been felt in the alumina market, which has seen prices balloon as panic buying takes hold.

Since the sanctions were imposed just over a week ago, the price of alumina has leaped by as much as 30 percent in some cases, which is over twice the price increase of primary aluminium over the same time period.

The reasoning for such a reaction by the market is scarcely a mystery. Rusal is both the most prolific refiner of aluminium not based in the People’s Republic of China, providing around 7 percent of all alumina on the market. In addition to operations in Jamaica and Ireland, Rusal also is a 1/5th partner in Rio Tinto’s gargantuan refinery in Australia.

While this alone would be significantly problematic in an otherwise healthy market, these sanctions come at a time when the alumina supply was already struggling to stay abreast of demand. Due to flooding several weeks ago in northern Brazil, fears of a breach of wastewater ponds at Norsk Hydro’s Alunorte refinery prompted local government to force the plant to curtail half its capacity until further notice. Subsequent independent investigations commissioned by Hydro have yet to find any sign of a release from the plant, but the government order has yet to be lifted, crippling the supply stream from the biggest alumina refinery on Earth.

To date, prices of alumina have risen to US$475 per metric ton at trading houses. However, according to unnamed traders who spoke with the Financial Times on Thursday, one cargo sold for US$601 per metric ton, spiking due to current and continuing scarcity of the product.

While the spike in alumina prices plays out on the wider market, pockets of the world that heavily depend upon the economic benefits of alumina production are on tenterhooks.

Production remains at full steam at present at Rusal’s refinery in Limerick, Ireland, but the firm advised its nearly 500 employees that it will be struggling under the sanctions placed upon it lately by Washington, D.C., touching off fear and uncertainty at the facility. Irish officials regard the sanctions as a serious existential threat to the plant, which not only props up a significant portion of the area’s economy, but also supplies a significant portion of alumina to European industry.

The head of Limerick’s chamber of commerce James Ring enunciated a common feeling in the area earlier this week, noting that a fight between D.C. and Moscow may have tremendous repercussions for those living on the banks of the River Shannon.

“When we see these political headlines between Russia and the US, you don’t immediately associate them with a small place like Limerick. But the reality is that behind such political decrees there are real lives that are going to be affected by this.”

Another locale bracing for impact is Jamaica, where Rusal owns the lion’s share of a major alumina refinery and operates two other significant refineries on the island. The Opposition People’s National Party (PNP) Spokesman on mining and energy Phillip Paulwell went on record Thursday to urge his government to commence talks with Rusal regarding how best to protect the livelihood of nearly 1,000 Jamaicans who rely upon the Windalco refinery.

Tempering the nation for what may well prove to be a painful economic stretch, Paulwell released a statement pleading with the state and the island’s population to remain on guard.

“In the current situation Jamaica must brace itself and prepare for the worst,” he warned.