SHANGHAI, Jan 16 (SMM) - Alcoa said on January 9 that the production of its Kwinana alumina refinery in Western Australia will be cut by 30%, citing natural gas shortages. One unit of the refinery has already been suspended. Alcoa owns 60% of the refinery and Alumina Ltd owns the rest. Alcoa has not yet decided when it will resume the production. In December 2022, the Australian government sought a 12-month price cap on natural gas and coal, but natural gas producers were worried that this move might put the supply at risk.
Reasons for Australia's natural gas shortage
Chevron Corp's Wheatstone natural gas plant in Australia, which produced 215 terajoules per day, was shut down on January 5 due to equipment failure, cutting off natural gas supply to Western Australia. A Chevron Corp spokesman said on January 9 that production at the Wheatstone plant was expected to resume in the future and that the company was working with customers, regulators and the wider market to meet demand. The gas supply disruptions at Wheatstone came after suspensions of Santos Ltd's Varanus Island operations. Since the end of November 2022, Santos Ltd's natural gas business has been suspended due to a natural gas pipeline leak on an offshore platform. As a consequence, Australia headed into natural gas shortfalls, which caused instability in the production of manufacturers in the country.
Impact of production cuts at Kwinana refinery
Kwinana produced 2.22 million mt of alumina in 2021 and 1.99 million mt in 2022. SMM expects that the production cuts at Kwinana will last about one and a half months. The refinery’s installed capacity stands at 2.19 million mt. A 30% reduction will cause a daily output loss of 1,800 mt, which could translate into a total loss of 81,000 mt in one and a half months.
Kwinana, which is the oldest alumina refinery in Australia, exports its alumina to the rest of the world, including the Middle East, India, China, South-east Asia, Africa, Europe and North America. Prior to the output reduction at Kwinana, the overseas alumina market was stable and the prices of Australian alumina had stayed at $330/mt for several consecutive weeks. If Kwinana fails to resume its production soon, the overseas alumina prices will be well supported. Should the impact of production cuts expand, the overseas prices will inevitably rise further.