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Alumina Price Volatility Makes Companies Rethink Strategies

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Nov. 20 2020, Updated 12:23 p.m. ET

Aluminum markets

Global aluminum markets have seen significant volatility this year. Aluminum prices topped the $2,500 per metric ton level in April amid Rusal sanctions. However, prices are currently languishing near the $2,000 per metric ton level. Alumina prices have been more volatile than aluminum prices (XME).

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Alumina prices

The global alumina markets have been rocked by a series of supply disruptions this year, especially at Norsk Hydro’s (NHYDY) Alunorte refinery. Alumina prices as a percentage of aluminum prices are currently above the historical average. A higher alumina-to-aluminum ratio negatively impacts earnings for companies such as Century Aluminum (CENX) that need to source alumina from the outside. Alcoa (AA) and Rio Tinto (RIO), on the other hand, are long on alumina and stand to benefit from higher alumina prices (AWC).

Q3 2018 earnings

Century Aluminum reported its third-quarter earnings yesterday, October 25, after the markets closed. It reported revenues of $482 million compared to $470 million in the second quarter. However, its adjusted EBITDA fell from $54.5 million to $28.7 million in that period, largely due to higher alumina costs.

In Century Aluminum’s third-quarter earnings call, analysts were interested in alumina supply contracts. The company shifted its alumina purchases to API (alumina price index) a few years back but is now tweaking its purchase strategy based on a mix of fixed price, API, and aluminum prices.

Higher alumina prices have also seen Chinese refineries exporting more alumina. The country is generally a net importer of alumina in normal circumstances.

Be sure to visit our Basic Materials page for ongoing updates on aluminum producers.

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