Shares of National Aluminium Company Ltd (Nalco) declined 5 percent on August 14 after Norsk Hydro’s Alunorte refinery in Brazil began ramping up alumina production following a temporary reduction in output caused by gas supply constraints.

Alunorte, one of the world’s largest alumina refineries, received approval from Brazil’s regulator to operate as a self-importer of gas. The refinery also reached a temporary gas supply agreement with CELBA that provides access to a gas terminal, allowing production to increase as gas availability improves.

The earlier production cutback at Alunorte resulted in an estimated loss of around 100,000 to 120,000 tonnes of alumina production. The restoration of gas supplies is now enabling the refinery to gradually increase output, potentially adding supply to an already closely watched global aluminium market.

At around 10:25 am on August 14, Nalco shares were trading 5 percent lower at Rs 381.15 apiece. Hindalco Industries and Vedanta were also under pressure, declining around 2 percent and 1.2 percent, respectively.

The global aluminium market has remained volatile this year amid disruptions caused by the Iran conflict, which affected metal flows from the Middle East. The region accounts for roughly one tenth of global aluminium production, and supply disruptions pushed aluminium prices and regional premiums sharply higher earlier in the year.

Although aluminium prices retreated after the initial escalation of the conflict, prices have recovered since the end of June. At the same time, aluminium inventories in London Metal Exchange warehouses have continued to decline and are now close to a quarter of a million tonnes, their lowest level since November 1990.

The tight inventory situation has kept supply concerns elevated despite additional production from China and Indonesia. Norsk Hydro had also warned last month that the global aluminium supply deficit could widen to more than 900,000 tonnes annually if trade through the Strait of Hormuz was not normalised.

The restart of production at Alunorte therefore introduces an additional source of alumina supply into the market, potentially easing some supply pressure for aluminium producers. For Indian aluminium companies, the development is relevant as changes in global alumina availability and aluminium prices can influence input costs, margins and market sentiment.