Alumina price upswing complicates aluminium market dynamics, warns Trafigura

The Trafigura Group, a key player in the commodity market, asserts that the surge in alumina prices significantly reshapes the outlook for aluminium prices.

The price of alumina—derived from mined bauxite and used in aluminium smelting—skyrocketed by 50 per cent in 2024, reaching its highest level since March 2022.

This sharp increase has been fuelled by production disruptions at alumina refineries and rising demand from aluminium smelters. Despite this, aluminium prices on the London Metal Exchange have remained relatively stagnant year-to-date. However, the escalating cost of alumina is placing significant financial pressure on smelters that don't have their own supply, potentially straining the broader industry.

This growing commercial burden raises concerns about the long-term stability of aluminium production costs.

At the Fastmarkets aluminium conference in Athens, a senior analyst with Trafigura, Henry Van, said, “It’s the most important thing in the market right now, and anyone who’s not looking at it needs to start looking. This is really, really terrible for aluminium producers worldwide.”

According to Van, if high alumina prices remain elevated for an extended period, smelters may begin scaling back production. However, Trafigura's baseline expectation is that supply imbalances will be resolved this year, which would mitigate some of the associated risks.

Van said, “I think it’s more likely that the pressure will ease. We’d need to see sustained pressure on these smelters for another year for cuts to happen.”

However, Concord Resources Ltd., a competing metals trading firm operating an alumina refinery in Louisiana, has cautioned that elevated prices and the supply shortage could continue longer than many industry experts anticipate.

Concord's head of research, Duncan Hobbs, told delegates, "The price spike was not well anticipated, and the alumina market is much tighter than popularly appreciated. I think prices can hold higher for longer, certainly than the forecasts that I've seen."

According to Hobbs, the main risk to Concord's optimistic outlook is if China leverages its surplus alumina production capacity to address the supply shortfall. However, despite significant commercial incentives, China's alumina output has only seen modest growth this year.

“Why is China not turning out more alumina if these capacity numbers are correct,” Hobbs asked.

 “I would venture that every alumina refinery today is focusing as hard as it can to push every ton out the door.”