Russia, Brazil woes could lead to aluminum supply shortage: Hydro CEO

OSLO (Reuters) - The global aluminum market could face supply shortages because of U.S. sanctions on Russia and Norsk Hydro’s production cuts in Brazil, Hydro’s chief executive told Reuters on Monday.

FILE PHOTO: A view of alumina refinery Alunorte, owned by Norwegian company Norsk Hydro ASA, in Barcarena, Para state, northern Brazil March 5, 2018. REUTERS/Ricardo Moraes/File Photo

Industries ranging from automakers to soda-can producers are worrying over deliveries and sharp price hikes, Svein Richard Brandtzaeg said in an interview.

Over the weekend, Hydro cut output from the Albras aluminum plant in Brazil by half, as it had previously warned, in response to an unresolved dispute at its nearby Alunorte alumina refinery, which supplies the key raw material.

“If this lasts long, it’s possible it will also lead to production cuts at our Norwegian smelters, which also receive alumina from Alunorte,” Brandtzaeg said.

“This is not positive for the aluminum industry. We’ve got long-term customers seeking stable relations, and our car-making customers are particularly worried in this situation, both by the prices but also by the cost of delivery premiums,” he added.

Aluminum prices hit six-year highs on the London Metal Exchange on Monday, continuing a spike that began when the United States imposed sanctions on UC Rusal, the world’s second-biggest producer, as well as Hydro’s own cuts.

“There is a shortage of alumina, and there will also be a shortage of aluminum unless Rusal can find new markets quite quickly,” Brandtzaeg said at Hydro’s headquarters in Oslo.

Rusal could potentially maintain its production by exporting more to Asian countries, although this could in turn disrupt the regional market balance, he added.

“The metal would remain part of the global balance and we’d have to expect more exports from Asia into our European markets, particularly since China faces restrictions on exports to the U.S.,” Brandtzaeg said.

U.S. President Donald Trump last month imposed import tariffs of 10 percent on aluminum and 25 percent on steel to protect U.S. metal producers from cheap imports.

Rio Tinto’s declaration of force majeure on certain customer contracts as a result of the U.S. sanctions on Rusal also boosted aluminum prices on Monday.

Hydro’s cutbacks at Albras, South America’s largest aluminum plant with an annual capacity of 460,000 tonnes, amount to an equivalent of 230,000 tonnes per year, and will last until Alunorte is back to full capacity.

Following heavy rains in February, Hydro admitted there had been unregulated emissions of water into a river at the Alunorte plant, but denied it had contaminated the environment.

Alunorte, the world’s largest alumina refinery, declared force majeure after Brazilian authorities ordered it to halve its production.

Editing by Gwladys Fouche and Adrian Croft