Macquarie downgrades Alumina CY23 earnings as WA gas shortage bites

Aluminium heavyweight Alumina Ltd’s (ASX:AWC) analysis confirming a WA gas shortage will affect the company's bottom line was highlighted by Macquarie Bank on Tuesday. 

Macquarie has downgraded its CY23 earnings forecast by -7%, however, the target price for Alumina remains unchanged at $1.00. 

The bank downgraded earnings per share for CY23 from US3.7c to US3.4c. 

Unwanted disruption 

Back in December, the Australian Energy Market Operator (AEMO) outlined its assessment that demand for gas in WA between 2025 and 2027 will outstrip supply. 

It turns out a crisis point has come far sooner. 

Late last week, a Chevron-led gas plant in WA was hit with an unplanned outage. 

This forced Alcoa to cut alumina production yesterday from its facilities in Kwinana, which is the Perth Metropolitan area’s major petrochemical and metallurgical industrial hub.

The gas plant, Wheatstone, services mainly industrial customers. Rio Tinto (ASX:RIO), also a customer, told the press it is conserving gas in the meantime. 

Production cut, energy cost increase

Right before the weekend, Alumina swapped to diesel generators at its Kwinana facility, as well as another in Pinjarra. 

Macquarie predicts this swap to diesel will come with sizeable energy cost headwinds. Gas was previously being sourced through the Dampier-Bunbury pipeline, which services a long corridor of industry. 

The bank ultimately predicts Alumina will run at reduced production rates for one month, and lowered its production estimate for Q1 2023. 

Alcoa, the un-listed JV partner with Alumina and operator of its Kwinana operations, cited a fall-back to only 70% of production capacity. 

The state of AWC's six month charts