Alumina refinery cuts seen likely as surplus grows

By Karen Norton

LONDON, Oct 13 (Reuters) - A refinery closure is seen likely as the alumina market heads for a further big surplus next year and as prices continue to fall, analysts said on Friday.

``If you look at the surpluses you have to be looking at curtailments,'' Julian Kettle, analyst at industry consultants Brook Hunt, said.

Mark Fraser of consultancy CRU International said a 700,000-800,000 tonne alumina surplus forecast for next year assumed at least one refinery shutdown.

Spot alumina prices have fallen to around $180-200 a tonne from a 10-year high of around $450 at the end of March.

CRU saw prices averaging $150-160 in 2001, while Brook Hunt predicted an average below $150.

However, the fact that producers had made very good money this year might discourage cutbacks, Nick Moore, analyst at Chase, said. ``They might decide to limp along rather than close...in 12 months they may be cranking up again.''

Demand for alumina was seen curbed next year by the estimated 500,000 tonnes per year of power-related aluminium smelter cutbacks in the U.S. Pacific Northwest. Analysts did not envisage any major restarts of this idled capacity until 2002.

But the start-up of Alcan's (Toronto:AL.TO - news) greenfield Alma smelter and the build-up to capacity of Billiton's (quote from Yahoo! UK & Ireland: BLT.L) 47 percent owned Mozal plant in Mozambique would partially offset the U.S. cuts next year, according to Moore.

He also noted that 200,000 tonnes per year of mothballed smelter capacity owned by Alcoa (NYSE:AA - news) could be restarted.

PRODUCTION GROWING DESPITE SLACK DEMAND

Kettle said the market outlook would remain very soft in 2001.Full production was expected next year from the Worsley refinery in Western Australia, where an expansion to 3.1 million tonnes per year was completed in September. India's Nalco was scheduled to complete the expansion of its Damanjodi plant around mid-2001 and Kaiser Aluminum (NYSE:KLU - news) aimed to restart its Gramercy refinery in Louisiana around the middle of the current quarter.

Last week the Jamaica Bauxite Institute said Kaiser planned to resume bauxite shipments from its Runaway Bay mine to Gramercy before the end of October.

CHINESE IMPORTS

Chinese imports might rise if spot prices remained weak, because of the need to replenish stocks after a drawdown this year, Kettle said.

But the impact on the overall market balance was not expected to be significant.

In the first eight months of 2000 China imported 1.080 million tonnes of alumina, up 1.1 percent on levels a year earlier, according to official customs figures.

A senior engineer at the China Great Wall Aluminium Corporation recently estimated that China's alumina deficit might reach five million tonnes in 2005.

RUSSKY OUTPUT RISING

Analysts said weak prices might lead alumina producers in Russia and China to close capacity.

However, Russky Alyuminy's Chief Operating Officer Alexander Bulygin told Reuters on Thursday production at its Nikolayev refinery in Ukraine and Achinsk in Russia would rise by a combined 230,000 tonnes in 2001 and by 600,000 within three years.

The company also announced the purchase of the Oradea refinery in Romania.

Russky, which has been short of alumina to the tune of 1.2 million tonnes, has now bought 1.7 million tonnes.