Alcoa flags lower WA output on gas supply, approval problems

Alcoa’s alumina production will fall by about 500,000 tonnes for the full year and gas supply has been a significant contributor.

Alcoa says its total alumina production will slip by about 500,000 tonnes for the full year, partly as a result of problems in Western Australia.

Alcoa’s WA operations had to rely on diesel generators after outages at the state’s domestic gas plants caused a power crisis earlier in January – and the global alumina giant’s Kwinana refinery is still operating at only 70 per cent capacity.

Santos shut down its John Brooks production facility in late November after methane leaks were seen in the water around the platform, reducing supply through the company’s Varanus Island hub. The gas major said on Thursday it did not expect John Brooks to resume production until at least the end of January.

The problem was exacerbated in early January due to an outage at Chevron’s Wheatstone gas plant, and a curtailment of supply at Santos’ Devil Creek facility.

The loss of the domestic gas into the WA market caused a short-term power crisis in that state, and Alcoa – the biggest user in WA – became a victim of the shortfall in January.

Releasing its full-year production figures overnight Wednesday, Alcoa said total alumina production would drop by about 500,000 tonnes for the full year, partly as a result of curtailment of operations at Kwinana.

The company said it had turned to diesel generation at both its Kwinana and Pinjarra refineries in January in response to shortfalls in the WA market and, while gas supply had resumed, it was still operating at 70 per cent capacity at Kwinana in response to “ongoing uncertainty in the gas market”.

Santos supplies about 82 petajoules of gas to Alcoa a year from its John Brooks field under a 2015 deal that was extended in 2020.

“Work on reinstatement of the John Brookes gas pipeline continues, with production expected to resume late-January to early-February,” Santos said on Thursday.

Alumina Corp chief executive Mike Ferraro. Picture: David Geraghty

But Alcoa’s problems in WA go beyond the immediate gas supply issues. The company also flagged production issues stemming from its inability to win environmental approvals needed to extend its Huntly mine into higher-grade bauxite areas, meaning the company must rely on low grade produce to feed its Pinjarra and Kwinana refineries.

“The annual mine plan approvals process in Western Australia is currently taking longer than it has traditionally. Alcoa is working co-operatively in Western Australia with state regulators to address increasing expectations for environmental management to support these approvals,” Alcoa said.

“Considering the delays, the company is reducing the bauxite grade at the Huntly mine, beginning in April 2023. The reduction in grade will extend the ore supply available under existing approvals and provide more time to work through the next set of approvals.”

The decision will reduce output at both refineries, Alcoa said, and push up costs as it will need to use more energy, caustic soda and raw bauxite to produce a tonne of alumina.

Alcoa’s WA operations are owned by Alcoa World Alumina and Chemicals, 40 per cent owned by ASX-listed Alumina Corp.

Alumina said on Thursday AWAC booked December quarter earnings before interest, tax, depreciation and amortisation of $27m in its alumina division and $24m in its bauxite segment.

Alumina boss Mike Ferraro said cost pressure and lower alumina prices constrained AWAC’s margins in the December quarter, and Alumina received only a $4.5m distribution from its operations for the second half of the year. But with alumina prices again rising since the beginning of the year, Mr Ferraro said 2023 had a brighter outlook.

“Despite these near-term challenges, AWAC will benefit from an improvement in alumina prices,” he said.

“The reopening of China, reduction in shipping costs, recent refinery curtailments, and smelter restarts in Europe and the Americas all provide support for alumina prices.”

Alumina shares closed down 11.5c to $1.585 on Thursday.

Originally published as Alcoa flags lower WA output on gas supply, approval problems