The Hong Kong trading debut of Nanshan Aluminum International Holdings, a Glencore-backed company and Southeast Asia’s top alumina producer, saw a decline in its stock price due to falling aluminium prices and the resulting negative market sentiment.
The newly listed unit of China’s Nanshan Group experienced a 1% decrease to HK$26.35 apiece during the first day of its initial public offering, after rising as much as 1.1% earlier.
The sale’s proceeds will be used to expand production in Indonesia and for general working capital, according to a Bloomberg report.
Alumina prices
The price of alumina, a crucial raw material used in the production of aluminium, experienced a significant surge throughout the year 2024.
This upward trajectory culminated in prices reaching an unprecedented peak, marking a new record high for alumina costs.
The escalation in alumina prices was substantial, with the cost more than doubling over the course of the year.
This dramatic increase in the price of this essential input for aluminium production had far-reaching implications for the aluminium industry, impacting production costs, profitability, and potentially leading to higher prices for aluminum products.
The alumina market has since then experienced a decline in prices due to the introduction of new production capacity.
This decrease comes after a series of disruptions that have impacted the global supply chain for alumina, affecting production and transportation in key regions such as Jamaica, Guinea, Australia, and China.
The industry’s effort to stabilize the market by increasing capacity to meet demand has unintentionally resulted in an oversupply, leading to a decline in prices.
Outlook murky for Nanshan
These disruptions highlight the vulnerabilities of a complex global supply chain, where events in one region can have far-reaching consequences for the entire industry.
Michelle Leung, an analyst with Bloomberg Intelligence, stated that despite Nanshan Aluminum International Holdings’s undemanding valuation, its earnings outlook “isn’t particularly promising” due to the fall in alumina prices.
Glencore International, a fully owned subsidiary of Glencore Plc, holds a significant position in the company.
This strategic relationship was further solidified in January through the establishment of an offtake agreement, as outlined in the company’s prospectus.
This agreement essentially ensures that Glencore International will purchase a predetermined quantity of the company’s future production, providing a stable source of revenue and demonstrating Glencore’s confidence in the company’s potential.
Moreover, the offtake agreement guarantees a consistent demand for the company’s products, mitigating potential market volatility risks and ensuring a predictable cash flow.
Indonesia’s alumina industry poised for growth
Meanwhile, Indonesia’s alumina industry is poised for rapid expansion this year, driven by a 2023 ban on bauxite exports.
This has prompted several Chinese companies to establish refineries in Indonesia, diversifying their supply chains away from Guinea, a major bauxite producer.
In addition to the second phase of expansion undertaken by Nanshan, Indonesia’s state aluminium unit initiated trial production from a newly established alumina refinery in January.
This development signifies a strategic move by the Indonesian government to bolster its domestic aluminium industry and reduce reliance on imported alumina.
The commencement of trial production at the new refinery is expected to contribute to increased alumina output in Indonesia, potentially leading to greater self-sufficiency in aluminium production and enhanced export capabilities.
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