LONDON- Alumina is having a turbulent year.

The intermediate product sitting between bauxite and refined metal on the aluminium production chain doesn’t normally grab the headlines.

But it did in April, when the spot price doubled to over $700 per tonne as the market reacted to U.S. sanctions on Oleg Deripaska and his Rusal empire.

The sanctions threw into doubt the future of Rusal’s Aughinish alumina plant in Ireland, threatening a second blow to global production after the part closure of the Alunorte refinery in Brazil.

Aughinish won a reprieve as the U.S. Administration extended the sanctions deadline and the betting is that a political deal to lift the sanctions altogether will be achieved very shortly.

However, while the aluminium price is now trading back at pre-sanctions levels, that of alumina isn’t.

Alunorte remains part suspended and Chinese alumina refineries have started cutting production.

The latter may be a sign of things to come, promising further turbulence ahead.

SANCTIONS SPIKE

When the United States announced the imposition of sanctions on Rusal on April 6, it was the aluminium price that reacted first. London Metal Exchange (LME) three-month metal rocketed from $2,000 per tonne to a seven-year high of $2,718 in the space of a couple of weeks.

It took around a week for alumina to follow because that’s how long it took the market to unravel Rusal’s internal supply chains.

On paper the company looks vertically integrated with its own bauxite mines, alumina refineries and aluminium smelters.

The reality is a bit more complicated.

Aughinish, it turns out, largely runs off bauxite supplied by Rio Tinto, which in turn takes a good part of the plant’s two million tonnes of annual production to feed aluminium smelters in Europe.

Rio Tinto declared force majeure on supplies of alumina to some customers on April 18, which is when the alumina price exploded higher.

It turned out to be only a notional force majeure since the extension of the sanctions deadline to Oct. 23 meant no interruption to actual deliveries, the company said in its Q2 operations report.

But even the threat was enough to trigger a panic in the physical alumina market, which was already trying to adjust to the loss of half the output at Hydro’s Alunorte refinery.

Alunorte, the world’s largest single alumina plant with annual capacity of 6.3 million tonnes, was ordered partially to curtail operations by a Brazilian court in February on environmental grounds.

The operational wind-down and any associated spot market buying by Hydro was still happening when the sanctions shock hit the market.