Alumina Price Decline Resumes, HARBOR’s Price Target Remains Unchanged

KEY MESSAGES

ALUMINA

1. Australian alumina spot prices have fallen to $355 per mton and are down 50% from their peak of last year. The imminent restart of Alunorte, EGA’s alumina refinery ram-up ahead of schedule, and expectations of a shift to a world market surplus in 2019 have accelerated the price decline, now down 15% in the last week.

2. Alunorte's full restart looks imminent as federal prosecutor requests lift of embargo. Brazilian Federal Prosecutor Office (Ministério Público) has asked a Federal Court to lift the production embargo against Alunorte. On April's 12th hearing, Ministéiro Público and Hydro delivered a joint petition to the Federal Court in Belem for the lifting of the production embargo against Hydro's Alunorte alumina refinery. According to Hydro, the petition follows an independent expert report, paid by Ministéiro Público, that concluded Alunorte can safely restart production. This independent expert report confirmed the findings of two different studies previously conducted by the state environmental agency SEMAS and the Federal University of Campina Grande, which also showed Alunorte could resume safe operations. The final decision to lift the embargo is now in the Court's hands.

3. News of the likely full restart of Alunorte reinforce our bearish view on alumina prices. Alumina prices have practically reached our short-term downward target of $350 per mton and are expected to continue to fall to as low as $250 per mton at some point in the 12 months. With the restart of Alunorte and refinery expansions in China and the Middle East, the world's alumina market is expected in 2019 to switch to a surplus of 2.3 million mton.

BAUXITE

1. Domestic Chinese bauxite prices continue to decline. Prices in Henan province stand at $55.9 per mton delivered (excluding VAT), down 10% from a month ago. In Guizhou prices declined 7% m/m to $41.0 per mton delivered, excluding VAT to increase. Meanwhile, bauxite in Shanxi is trading at $71.5 per mton delivered (excluding VAT), down 2% m/m.

2. Imported prices remain stable on ample availability. In February, Chinese bauxite imports were up 45% y/y, to a record-high of 8.813 million mton. Chinese import growth continues to come mostly from Guinea (imports up 30% y/y to a fresh record- high of 4.4 million mton) and Australia (also reached the highest monthly level of 2.8 million mton). Additionally, Indonesian shipments to China have started to grow again as more companies have been granted export permits.

3. Indeed, Chinese inventories of imported bauxite have climbed to record-highs in nominal terms and to four-month highs in terms of consumption rates.