UPDATE 2.45pm Alumina Ltd has flagged an end to China’s control over aluminium prices as it posts a $US14.6 million ($A13.95 million) half year loss.
Non-chinese producers such as Australia’s Alumina and Rio Tinto are hurting from China’s policy in recent years of over-producing aluminium to drive down the alumina price and get cheaper input costs.
The price of aluminium has fallen 18 per cent from a year ago to about $US1,835 a tonne and was sluggish before that when other commodity prices were booming.
Alumina chief executive John Bevan said China was not producing enough of its own bauxite rock to process alumina - which is then processed into the metal, aluminium.
It imports one-third of its bauxite but those imports have plunged 93 per cent since June because chief supplier Indonesia is unhappy with prices and has started greatly restricting imports and slapped extra taxes on them.
This would open up opportunities for Alumina with China forced to buy aluminium imports at a higher price, Mr Bevan said.
Aluminium is the most widely used metal in the world outside iron and demand was still growing, Mr Bevan said.
"However current prices have resulted in a significant portion of non-Chinese smelters operating below cash break-even,” he told reporters.
"While the short term outlook remains volatile, we are encouraged by the continued strong physical demand for aluminium and evidence of some positive catalysts for improved alumina pricing are emerging,” he said.
Alumina’s high cost, high energy intensive aluminium smelters in Victoria are losing money and Mr Bevan flagged further production reductions in the short term.
Melbourne-based Alumina’s only earning asset is its 40 per cent stake in Alcoa World Alumina and Chemicals (AWAC), with the world’s biggest aluminium company Alcoa holding the remainder.
AWAC operates three refineries in WA - Wagerup, Kwinana and Pinjarra - and bauxite mines at Huntly and Willowdale.Alumina’s first half result compares with a $67.7 million profit for the first half last year.
No interim dividend was declared after it paid a final dividend of US three cents a share in February.
Its shares were punished, losing six cents, or 7.7 cents, to 72.5 cents by 12.44pm.
JP Morgan analyst Lyndon Fagan said a major concern for the market was a 44 per cent increase in Alumina’s net debt to $US602 million.
"We’re not predicting a dramatic improvement with prices in the near term and on that basis AWAC is likely to continue being a marginal business over the next six months,” he told AAP.
The company’s alumina refineries - as distinct from aluminium smelters - are cashflow positive but there was a a weak earnings before interest, tax, depreciation and amortisation (EBITDA) result of $161 million compared to $611 million a year ago.
Alumina pricing has been linked to the aluminium price, keeping it weak, but has moved to independent spot pricing by 30 per cent helping to deliver more value.
Morningstar analyst Mark Taylor said he was positive on the company’s long-term prospects due to that “de-coupling” of prices.
Alumina’s main asset is its 40 per cent stake in Alcoa World Alumina and Chemicals (AWAC), with the US company holding the remainder.
It said the short-term outlook remained volatile.
London Metal Exchange aluminium prices have fallen five per cent since the start of the year, driven down by continued weakness in the euro zone economy and negative macro-economic sentiment globally.
Alumina’s high cost aluminium smelters in Victoria have been struggling and, the company said, further production reductions were expected.
The loss-making Point Henry plant, near Geelong, recently received a $40 million federal government bailout that saved about 600 jobs.
Earnings before interest, tax, depreciation and amortisation (EBITDA) was $161 million, compared to $611 million a year ago.
The company’s chief executive John Bevan said it had been a tough half but the operations were still performing strongly with alumina refining (a key input in aluminium) generating positive EBITDA margins.
"Productivity improvements across the refining portfolio offset the impact of higher input prices and this was a significant achievement for the half,” he said in a statement.
The transition to spot pricing for alumina rather than linking it to the currently weak aluminium price was delivering real value until conditions improved,” he said.
"While the short-term outlook remains volatile, we are encouraged by the continued strong physical demand for aluminium and evidence of some positive catalysts for improved alumina pricing are emerging,” he said.No interim dividend was declared and shares closed down 6 cents to 72.5 cents,