Alumina first half net profit slumps 60pc

Alumina’s first half earnings sank as the pandemic hit the sector, although the Portland smelter managed a thin profit.

Portland's Alcoa aluminium smelter. Picture: Jake Nowakowski

Alumina earnings slumped 60 per cent in the first half of the year as the global pandemic hit the sector, with net profit more than halving to $US90.5m ($126.4m).

But the associated crash in alumina prices helped the company’s struggling Portland aluminium smelter to a thin $US12.7m profit, before interest, tax, depreciation and amortisation, a $US32.2m reversal from the first half of 2019.

Alumina boss Mike Ferraro told The Australian that without state government subsidies – which expire in mid-2021 – the Portland result “would be a very different number” and said talks to resolve the future of the smelter were still ongoing.

Alcoa launched a review of Portland’s future late last year, saying a cheaper power deal was needed to keep the facility operating when its current agreement ends in July 2021.

Power providers, including AGL, have been in talks with the Australian Competition and Consumer Commission about winning permission to offer a joint power contract to the facility, which makes up more than 10 per cent of Victoria’s total power consumption each year.

Mr Ferraro said discussions with power providers around the future of the under-threat smelter had been “constructive”, but said he could not put a time frame on the outcome of those discussions.

Alumina released its first-half financial results on Tuesday, saying its major asset – a 40 per cent share of Alcoa World Alumina and Chemical (AWAC) – had performed well despite the impact of the coronavirus crisis.

AWAC revenue tumbled 24 per cent on the back of the coronavirus’ impact to the global economy, to $US2.15bn. The AWAC joint-venture booked EBITDA of $US507.1m, down 47 per cent from the first half of 2019, as the average realised alumina price fell 29 per cent in the period to $US266/t.

Mr Ferraro said AWAC was position to keep its head above water even if a second wave of the pandemic continued to depress industrial activity across the globe, but said the company was positioned very well for a broader recovery in demand if a vaccine was found.

“I think 2020 will be what it will be, so we’re forecasting a negative growth in aluminium demand for this year. But we’re expecting a pick-up next year, of about 4 per cent in China and 1 per cent in the rest of the world. So that augurs well for alumina demand,” he said.

“But further one, outside of China over the next five years we think there’s going to be a need for about 7.8 million tonnes of additional aluminium in the market. And at the moment it’s not clear where the additional 15 to 16 million tonnes of alumina are going to come from to support that growth.

“If that growth transpires more alumina will be required. That won’t be produced in China to service the rest of the world, because costs of production are too high in China for export. So that doesn’t augur too badly for our business.”

Mr Ferraro said AWAC had managed to maintain cash margins of $US73 per tonne of alumina produced in the period, despite plunging demand for aluminium as major car makers and other manufacturers were hit hard by the economic downturn caused by the pandemic.

“Primary aluminium demand fell over the first half of 2020 as a result of the pandemic but over the full-year aluminium production is expected to be stable. Due to a recent supply disruption in Brazil the global alumina market is expected to be in deficit by around 1.1 million tonnes this year,” he said in a statement.

“In the first half there was an increase in aluminium inventories and that is expected to continue in the second half, although at a slower rate as economies slowly recover. The alumina spot price has moved off the lows of April 2020 and has recently increased to US$288 per tonne following the supply disruptions.”

Alumina declared a US2.8c a share interim dividend on the back of its result, well ahead of analyst expectations.

Its shares closed up 5.5c, or 3.5 per cent, on Tuesday at $1.645.