Norsk Hydro’s Brazil Alumina Plant Closure Sends Prices Rocketing

Aluminium rallied to a three-month high on Wenesday after Norsk Hydro announced a full curtailment of operations at its Alunorte alumina refinery plant and Paragominas bauxite mine in Brazil. The production stoppage sent the Norwegian titan’s share price down 11 per cent and added to increasing uncertainty about the availability of the raw material.

Hydro’s Alunorte refinery has been running at half rate of production since March due to an embargo by Brazil authorities concerned with the environmental impact of the plant. Hydro cited the embargo and the lack of permission from the authorities to use its additional waste processing equipment as the reason to temporarily close the refinery. Bloomberg reported that it could take Hydro up to a year to obtain approval from the authorities and reopen the production.

The decision to shut down Alunorte will also trigger the imminent closure of the nearby Albras aluminium smelter, Chief Executive Svein Richard Brandtzaeg said. About 3,000 employees and contractors at Alunorte and 1,700 workers at Paragominas will be idle, highlighted Brandtzaeg.

The Norsk Hydro statement describe the shutdown as a technical matter. And yet, Norsk Hydro reached several agreements with the local authorities in Brazil earlier this year to restart full operations at the refinery. The company claims to possess the necessary technology to address the authorities’ environmental concerns.

John Thuestad, executive vice-president of Hydro’s bauxite and alumina segment, said: “This is a sad day because we have the world’s most advanced technology available to continue safe operations, which we are prevented to use, and this will impact jobs, communities, suppliers and customers.” He also added that the closures will lead to “significant operational and financial consequences”.

Alunorte is capable of producing 6.3 Mt/y of alumina and Albras has the potential to produce 460,000 t/y of aluminium. Hydro’s halting of output at Alunorte – the world’s largest alumina refinery – adds to further uncertainty in the aluminium market and could put more pressure on the price of the base metal. The stoppage comes at the time when Alcoa employees at its Western Australian aluminium operations agreed on Friday to end a strike that lasted more than six weeks.

Further compounding the situation, the U.S. Treasury Department’s looming deadline for the implementation of the sanctions against Rusal risks sending more shockwaves across aluminium supply chains. Rusal operates the Aughinish alumina refinery in Ireland, the biggest in Europe.