Vedanta Alumina Refinery Pond Collapse Threatens Global Supply Amid Market Tightness

(Bloomberg) -- A water storage pond at a Vedanta Ltd. alumina refinery in India collapsed, potentially removing more supply of the crucial raw material in an already tight market. Aluminum prices gained after the incident.

Alumina, an intermediate product processed from bauxite that is fed into smelters to make aluminum, has proved to be a particularly vulnerable corner of the global commodity supply chain in recent years, having been impacted by everything from sanctions on Russia’s top producer — which were later lifted — to disruptions at key refineries.

Aluminum rose as much as 3% in London and traded at $2,530 a ton by 4:04 pm. Copper traded 1.2% higher while nickel rose 1.5%.

The Vedanta incident occurred due to severe weather conditions and pressure in the catchment area of the dam at the Lanjigarh plant, causing the red mud pond, a byproduct of the aluminum refining process, to spill into nearby agricultural lands, according to CNBC. No injuries to humans or livestock have been reported so far.

Rising alumina prices have already been putting pressure on aluminum makers’ margins. Alumina has risen about 50% this year, to the highest since March 2022, driven by production disruptions and rising demand from aluminum smelters.

The alumina refinery feeds two aluminum smelters, which could have to reduce operating rates or try to source alumina from elsewhere, analysts from Morgan Stanley said in a Monday note.

"Shutting production would reduce alumina demand but potentially support aluminum prices if this volume were replaced by aluminum imports," they said. “In contrast, if the smelters looked to source imported alumina, this could tighten the alumina market even further, raising alumina prices and the aluminum cost curve.”