After a protracted period of discussion which was leading to a court case, now abandoned, Alumina Ltd (AWC) and Alcoa have agreed on amendments to their 40:60 AWAC joint venture. Brokers welcome the development as concerns over the AWAC JV had mounted after Alcoa announced a restructuring and de-merger.
Alumina Ltd (AWC) has enjoyed a recovery in margins in the June quarter, with the benefit of higher spot pricing and tight cost control. Alcoa, the company’s 60% partner in the AWAC joint venture, reported alumina segment earnings rose to US$109m, also benefitting from a slightly higher bauxite contribution.
Are the closures of alumina refining capacity witnessed in 2015 turning out to be a short-term trend? Recently, the re-firing of smelter capacity in China, as prices emerge from lows of US$198/t early this year, has started to weigh on broker views.
Alumina (AWC), the listed Australian shareholder in Alcoa’s key alumina and bauxite business, AWAC, and selected aluminium smelters, is being further relegated by a move by Alcoa to split itself into two companies.
I have been a long-term bull on aluminium and there is a secretly quiet boom that has been occurring for over a decade. Now before discussing this boom, it needs be stressed that this is a boom in usage and not in the aluminium price as we, as investors, are typically accustomed to focusing on. A price boom in aluminium will come with time but there are ways in which investors can profit from now while still being exposed to the future potential of the aluminium industry.
While alumina spot prices have softened in the past week, they remain at a "lofty" $559/t, the broker notes. Tailwinds are expected to continue in the second half with 50% of Alunorte production curtailed and China set to restock ahead of winter shutdowns.
Given greater confidence for smelter curtailments in China and discipline among ex-China producers, Deutsche Bank now expects the global aluminium market to shift into material deficit in the second half of this year through to 2019.
Press reports suggest the Chinese government is looking to impose winter curtailments on alumina and aluminium production. The broker believes current consensus forecasts for the alumina price are too bearish and not accounting for this possibility.
Deutsche Bank exhibits a strong conviction the current situation in alumina markets is unsustainable. On the analysts’ calculations, 70% of global producers is currently operating under water. Production curtailments are taking place, and more will follow.