Chalco raises spot alumina prices 50pc
Timing and magnitude of increase surprise market but rebound unlikely to be sustained in face of ample supply
Aluminum Corp of China (Chalco), the world's second-largest alumina producer, yesterday raised its spot alumina prices 50 per cent, the sharpest increase since the company went public.
The Beijing-based company said spot prices of alumina, the semi-processed material used to make aluminium, would be increased to 3,600 yuan a tonne from 2,400 yuan.
Shares in Chalco jumped as much as 12.5 per cent yesterday before closing up 10 per cent at HK$7.66.
The rebound in alumina prices was unsustainable given the amount of new capacity coming on stream in China, analysts said, adding the timing and magnitude of the increase surprised the market.
Chalco investor relations manager Zhang Qing said the price rise was in response to higher international prices, with imported alumina at mainland ports hitting about 3,900 yuan a tonne.
'We've set the price a little lower than the import prices as we think the rebound in international alumina prices will not last long amid ample supply,' Ms Zhang said.
She added that the recent price increase was partly driven by the stockpiling of mainland aluminium smelters ahead of the Lunar New Year.
Ms Zhang said the firm produced about 32 per cent more alumina to 9.5 million tonnes last year while aluminium volume had almost doubled to two million tonnes.
Last month, seven smaller rivals, including Shandong Weiqiao and Xinfa Huayu, jointly raised alumina prices in a move that challenged Chalco's dominant pricing role in the country where it has a market share of more than 70 per cent.
Chalco cut alumina prices four times last year, from a high of 5,650 yuan a tonne to 2,400 yuan, amid rising supplies and growing competition.
'The price lift is above market expectations and indicates the company's intention to retain its pricing influence on the alumina market despite the rising challenge from other local alumina plays,' DBS Vickers analyst Helen Wang said in a note.
The impact on Chalco's earnings should be insignificant, given that the alumina spot volume accounts for only 10 per cent of the firm's output with the bulk going for internal consumption and locked in long-term contracts.
Merrill Lynch, which expects Chalco's average spot alumina prices to fall to 2,442 yuan a tonne this year, said the higher the alumina prices, the more likely China would see an oversupply.
It expects alumina refinery capacity in China to jump 39 per cent to 25 million tonnes this year after last year's 75 per cent growth. This could further rise to 32 million tonnes by 2010 while aluminium smelting capacity will increase to 14.8 million tonnes from 10.9 million tonnes last year.