* Alunorte is world's largest alumina refinery
* Running at half capacity due to Brazil court order
* Idling endangers equipment, forcing partial shutdown
* Shutdown to take 2 months, full restart 2-3 months (Recasts with details and timeline of planned shutdown)
By Joachim Dagenborg and Brad Haynes
OSLO/SAO PAULO, March 27 (Reuters) - The Alunorte refinery in northern Brazil, owned by Norway's Norsk Hydro ASA NHY.OL , will start shutting down half of its alumina capacity in the next two weeks to preserve equipment, two people familiar with the matter said on Tuesday.
The world's largest alumina refinery, situated in Brazil's Amazon (NASDAQ:AMZN) region, was forced to halve its output under a judicial order last month after allegations of a toxic leak, pushing up global prices in an already tight market. process of idling equipment has built up scales and sediment threatening the plant's long-term capacity. The company will be forced to completely close three of seven alumina lines if the judicial order is not lifted, the sources said on condition of anonymity.
The plant could completely shut down the lines within about two months. A cold restart would then take two to three months, the sources said, warning that planning for the unusual procedure involved a high degree of uncertainty.
The lost output from Alunorte had already pushed up alumina prices after the company declared force majeure. The plant made 6.4 million tonnes of alumina last year, equivalent to about 10 percent of global production outside of China.
Analysts said the possibility of a protracted outage is only now dawning on the tight market for alumina. The mineral reacts with the atmosphere, leading producers to keep minimal stocks.
"Alunorte is a big deal," said Sydney-based UBS analyst Dan Morgan. "I would expect as this outage continues you would see anxiety on the part of consumer. While it's out, you'll see alumina above $400 (per tonne)."
Alumina prices jumped around 13 percent last week to $438 per tonne, the most expensive since November, according to MB pricing. AL-BRINFIDX-MB
Hydro spokesman Halvor Molland said the company was doing everything it could to avoid completely turning off lines at Alunorte, without confirming details of a potential shutdown.
"Right now we rotate the production between the seven production lines at the factory to keep them all warm. But this is not a lasting solution. We can't keep doing it like this much longer," he said.
"It's complicated and very time consuming to shut these production lines down completely and then restart them again. That is something we are really trying to avoid."
Hydro disputes accusations from Brazilian authorities regarding the contamination of water supplies in the area surrounding the plant following heavy rainfall in February.
Hydro has said the integrity at the plant remains intact, with no indications that there were ever any emissions from its bauxite depositories.
It has said some unregulated spills, including of untreated rainwater from the roof of a coal storage shed, have occurred, which were "completely unacceptable," Hydro Chief Executive Svein Richard Brandtzaeg said on March 19. Monday, Hydro received a counterproposal for a settlement with public prosecutors in Brazil. Still, Hydro said it had to be told what it needed to do to resume full operations.
Late on Monday, the company said it would release on April 9 conclusions from its internal review and a review it ordered from environmental consultancy SGW Services.