Alumina prices steadier but hefty surplus seen
LONDON, Dec 18 (Reuters) - Alumina prices have risen slightly, lifted by Chinese buying and higher aluminium prices, but the market is likely to remain over-supplied next year, analysts said on Monday.
``There is no sign that the fundamentals have improved significantly,'' said Adam Rowley of Macquarie Equities.
He expected the market to record another hefty surplus next year unless there were substantial supply-side adjustments.
Mark Fraser at analysts CRU International said, ``We definitely haven't seen the lowest prices yet. We see the floor at $150, or possibly slightly lower.''
Spot alumina prices had averaged $175 a tonne in the past month, up from around $165 in early November.
China, a major importer of alumina, had been buying material ahead of the Chinese New Year, analysts said.
Higher aluminium prices also meant smelters were in better financial shape to pay more for the raw material, Rowley said.
The alumina price rise had occurred despite further substantial aluminium smelter cutbacks in the Pacific Northwest of the U.S. and news last Thursday that Kaiser Aluminum Corp (NYSE:KLU - news) had restarted partial alumina production at its Gramercy, La. refinery.
Gramercy had been closed since July 5, 1999 following an explosion. Kaiser expected the plant to reach about 75 percent of its newly rated 1.25 million tonnes per year capacity within several weeks.
Rowley said the recovery in aluminium prices, prompted by recent smelter cuts, might have averted a potential slide in alumina prices to $140 or even $120.
Analysts estimate some 650,000 to 730,000 tonnes per year of smelting capacity has been idled in the Pacific Northwest because of soaring power costs.
MORE SMELTER CUTBACKS SEEN
Analysts thought more smelter cutbacks were likely.
``There is still smelter capacity at risk of closure, whether in the next few months or next October,'' Rowley said, referring to the date when the Bonneville Power Authority's new contract with smelters comes into effect.
Kirstine Veitch of Metal Bulletin Research said, ``Most of those smelters still operating in the Pacific Northwest are going to have a tough time of it.''
CRU's Fraser predicted an 800,000 tonne alumina surplus next year, but cautioned this did not allow for the impact of further smelter cuts.
Further significant closures might lead to higher aluminium prices, which would feed into contract alumina prices, he added.
``Refiners might lose on one side (spot deals), but win on the other (contract deals),'' Fraser said.
Annual contracts are normally concluded at 12 to 13 percent of the London Metal Exchange cash aluminium price .
Spot alumina accounts for five to 10 percent of the total market.
REFINERY OPERATING RATES SEEN FALLING
In early November Alcoa Inc (NYSE:AA - news) said it would suspend production at the end of next January at its St Croix. U.S. Virgin Islands refinery because its output was not immediately needed.
Analysts did not see other obvious candidates for closure, but thought refineries might turn down operating rates from the higher levels seen in response to Gramercy's closure.
However, more substantial cuts were deemed necessary to ease over-supply.
It was not enough for refineries to simply carry out previously postponed maintenance shutdowns, analysts said.
``The market will be stuck in surplus for a while unless someone sees reason,'' Veitch said.