Ground Breakers: Aluminium prices soar on Australia's Russian export ban

Aluminium prices surge 4.1% as Oz bans alumina and bauxite exports to Russia
Materials up 3.01% in morning trade as China announces credit support
New Hope issue interim dividend after $55.4m half year loss a year earlier

Aluminium is the latest metal to bump from sanctions imposed on Russia after Australia cut off alumina and bauxite supplies to Putin’s fiefdom.
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Prices gained 4.1% overnight to US$3521/t, with palladium and platinum prices also rising strongly, taking over from nickel as the boom metal of the current geopolitical situation amid Russia’s invasion of Ukraine.

Nickel continued its tumble down, protected by the London Metals Exchange’s limit down rule, closing down 15% at US$31,380/t two weeks after its sudden rise to US$100,000/t prompted the LME to shut off trade.

Back to alumina and Australia’s sanctions could cut some 20% of alumina supplies to Russia’s Rusal, which is already reeling from issues at its Aughinish refinery in Ireland and the closure of its Nikolaev plant in Ukraine.

Russia produces around 4Mt of aluminium a year, making it the biggest producer after China with 6% global market share.

It may have to rely on Chinese alumina to replace the almost 50% of alumina feedstock it is short.

“Based on the installed aluminium capacity in Russia, Rusal still needs additional 4 million mt of alumina,” SMM analysts said.

“The closure of the 1.77 million tonne/year Nikolaev refinery in Ukraine has made things even worse for Rusal.

“In order to ensure the stable operation of high-profit aluminium, Rusal may seek alumina from neighbouring countries. China may become Rusal’s best alumina supplier in terms of its advantageous geographical location and huge installed capacity.

“On the whole, the overseas alumina market tends to shift from a tight balance to a supply deficit.”

Western analysts have taken a similar stance, with Wood Mackenzie’s Uday Patel saying the ban on alumina exports will have a significant impact on Rusal, which both buys alumina from Australian companies and owns a 20% minority stake in Rio Tinto’s QAL refinery in Gladstone.

“In addition to the latest action taken by the Australian authorities, UC Rusal’s 1.75-Mtpa Nikolaev refinery in Ukraine is out of commission due to the on-going conflict. Furthermore, there are supply chain issues at the company’s 2-Mtpa Aughinish refinery in Ireland,” WoodMac senior manager Uday Patel said.

“It is becoming increasingly likely that the only option for UC Rusal to source alumina will be via purchases through Chinese entities. One possible outcome could be Chinese buyers purchasing alumina and redirecting sales via Eastern Russian ports.

“However, this poses a significant political challenge for China and its trading relationship with the rest of the world.”

South32 was the top performing large cap miner on the ASX this morning, up more than 4% to a near record level of $5.10, only bettered on March 4 this year.

Alumina (ASX:AWC), which owns 40% of Alcoa’s Alumina World Chemicals business, was up ~1%, while Rio Tinto was up ~3%.

Iron ore and base metals miners were all strong performers after China announced more moves to stimulate credit growth to stabilise its slowing economy despite keeping its loan rates unchanged, sending the materials sector up 3.01% at 11.30am AEDT.

South32 (ASX:S32), Rio (ASX:RIO) & Alumina (ASX:AWC) share prices today

New Hope Corp banks $330m profit

New Hope Corp (ASX:NHC) is the latest coal miner to ride 2021’s booming coal prices to a major profit, posting a $330.4m NPAT for the first half of the 2021-22 financial year.

New Hope, which reports from August to July, will issue a 17c per share interim dividend and 13c per share special dividend to shareholders in yet another example of coal miners returning their newfound wealth to investors.

It came against a half year loss of $55.4m one year earlier, with underlying EBITDA increasing by almost 600% from $81.2m in HY2021 to $554.4m in H12022.

Record thermal coal prices were the main reason for the spike in NHC’s profits, rising 147% from $77.98/t a year earlier to an average of $192.38/t in the six months to January 31 2022.

NHC’s closing sale price was even higher at $236.66/t, before Russia’s invasion of Ukraine sent Australian benchmark energy coal prices to records of around US$450/t last month.

It made over $1 billion in revenue in the half year, up from just $384.9m a year earlier.

NHC CEO Rob Bishop, who took over after previous CEO Reinhold Schmidt’s sudden departure in January, said demand for “high quality, lower emissions thermal coal” is expected to remain robust in the short to medium term due to tight supples.

“Cost control disciplines that were introduced during the 2021 financial year in response to a period of depressed prices have been embedded across the Group and will ensure that New Hope remains in the lowest cost quartile compared to other producers of seaborne thermal coal,” he said.

NHC was also relatively unharmed by Covid absenteeism or the mass flooding events on Australia’s east coast.

“Bengalla dealt very well with the challenges from COVID-19 related labour shortages and wet weather to minimise the impact on coal production, which was down only 1 per cent compared to the first half of last financial year.

“The mine will shortly take delivery of two additional haul trucks which will increase saleable production during the second half of the financial year.”