NALCO shares zoom 9%, Hindalco 3.7% after Alunorte disruption lifts aluminium prices: Impact explained

Shares of aluminium companies NALCO, Hindalco Industries, and Vedanta Aluminium Metal were trading with impressive gains on Wednesday, August 12, as Norsk Hydro ASA, a Norway-based aluminium and energy company, said on Tuesday that its Alunorte alumina refinery in Brazil has cut output to 50% of capacity.

The sharp reduction is due to a reduced supply of natural gas, propelling aluminium prices to a seven-week high.

NALCO shares rallied as much as 8.8% to ₹422.20 apiece in the early trade, while Hindalco jumped 3.7% to ₹1,087.95 on the NSE.

Vedanta Aluminium Metal shares were also trading higher. The stock advanced 2.9% to ₹476.95 on the NSE.

The Alunorte plant, located in the northern state of Pará, has capacity to produce 6.3 million metric tons of alumina per year. Approximately two tons of alumina, a substance refined from bauxite, are needed to produce one ton of aluminium metal.

The Norwegian company said it had implemented contingency measures to mitigate the impact on operations at Alunorte after being informed of disruptions to availability by its gas supplier, CELBA.

“Measures include purchasing spot gas volumes, requesting direct access to the Barcarena LNG receiving and regasification terminal, and temporarily reducing alumina production to 50%,” the Norwegian company said in a statement.

According to a report by Kitco Metals, Hydro estimates that the financial impact in the third quarter from reduced production and purchasing gas at prices above the contracted rate could be around $75 million to $100 million.

The company said Alunorte will begin ramping up production to full capacity once gas availability normalises.

What is the impact on Indian aluminium companies and why

The impact, as noted by news reports and analysts, is broadly positive for Indian aluminium producers, because the Brazil disruption could tighten global alumina supply and push aluminium prices higher. Aluminium prices have already moved to a seven-week high following the news.

Stocks in focus

To sum up

Alunorte is cutting alumina production by half. Since alumina is the key raw material used to make aluminium, less global supply can push up alumina and aluminium prices. For Indian producers, higher aluminium prices generally mean they can sell their metal at better prices, potentially boosting revenue and margins.

Reports note that the immediate trigger is an alumina supply disruption, while the direct earnings benefit for Indian stocks comes mainly through higher aluminium realisations. Since Hindalco, NALCO and Vedanta Aluminium are largely integrated, they are better positioned than companies that depend heavily on buying alumina externally.