Alunorte Shutdown: Norsk Hydro’s Pain Is Alcoa’s Gain



Alunorte closure

Norsk Hydro (NHYDY) has announced a production halt at its Alunorte alumina refinery in Brazil. The refinery, which is the largest alumina refinery outside of China, was operating at 50% capacity this year amid the feud between Norsk Hydro and Brazilian authorities. According to Norsk Hydro, “The decision was taken as the bauxite residue deposit area 1 (DRS1) is close to reaching its capacity, due to the embargo on the state-of-the-art press filter and the newly developed bauxite residue deposit area (DRS2).”

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Earlier this year, the Alunorte curtailment coupled with RUSAL sanctions pushed alumina prices to record highs. We also saw the alumina-to-aluminum ratio spike to record highs due to supply disruptions in alumina. Last month, alumina prices came under pressure amid expectations that Alunorte might ramp up production, theoretically adding some 260,000 metric tons of monthly alumina supply. Now, with the production halt at Alunorte, alumina prices could rise even further.


While Norsk Hydro has fallen sharply, Century Aluminum (CENX) is down 13.1% as of 12:00 PM EST. The company buys alumina from third parties, so rising alumina prices hurt its profitability. Meanwhile, companies like Alcoa (AA) that are long alumina stand to benefit from higher alumina prices (XME). The stock is trading ~6.4% higher as of 12:00 EST on October 3.

According to Norsk Hydro, “We will continue to work constructively with the authorities to lift the embargo and to resume operations in order to re-establish Alunorte as the world’s leading alumina refinery.” In the meantime, Alcoa could reap the windfall from higher alumina prices. Despite higher alumina prices and strong physical aluminum premiums in the United States (DIA), Alcoa’s stock has fallen this year. Please read Why It’s Tough to Hate Alcoa at These Prices for Alcoa’s bullish drivers.


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