Chalco increases alumina price by 10.5pc

PUBLISHED : Wednesday, 19 December, 2007, 12:00am
UPDATED : Wednesday, 19 December, 2007, 12:00am


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Aluminum Corp of China (Chalco), the world's second-biggest producer of alumina, raised its spot alumina price by 10.5 per cent yesterday, the second increase in the past month, to reflect tightening supply and higher production costs.

The Beijing-based company boosted the price to 4,200 yuan a tonne from 3,800 yuan. Together with the 8.5 per cent increase on November 27, Chalco had lifted the price 20 per cent in less than a month.

The import price for alumina, including freight costs and insurance, was about US$470 a tonne at present, Chalco said.

The increase was due to rising prices of imported bauxite as the Indonesian government had imposed more restrictions on exports and halted production at unlicensed local mining firms, Sabrina Xie Lulu, analyst at Guotai Junan, said.

Bauxite is a raw material in making alumina, a semi-refined metal to be processed into aluminium and related products for sale to manufacturers such as carmakers and construction firms.

As most bauxite reserves on the mainland are controlled by Chalco, other refiners mainly depend on imports to make the metal.

Bauxite imports from Indonesia account for more than 65 per cent of the country's total import of the raw material.

'The increasing bauxite cost has forced non-Chalco alumina refiners to operate at near break-even point, discouraging them from further capacity expansion,' Ms Xie said.

About two million to three million tonnes of new capacity under construction from non-Chalco refiners were being halted because of the rising bauxite cost, she added.

Despite the price rise, shares in Chalco, the mainland's largest alumina and aluminium producer, fell 2.3 per cent yesterday to HK$15.26.

Ms Xie expects Chalco's average alumina selling price to surge 13 per cent to 3,944 yuan a tonne next year from 3,500 yuan this year.

And it is likely to rise 8.6 per cent to 4,338 yuan in 2009 because of tight supply and strong demand. Concerns about a supply glut, tightening environmental rules and government land control would probably push some smelters to avoid the refining business and further expand into making aluminium products, analysts said.

Zhang Feng, analyst at JP Morgan, estimated that growth in the nation's aluminium smelting capacity would slow to 10 per cent next year and 9 per cent in 2009 from 29 per cent this year.

The country, the world's biggest producer and consumer of aluminium, might become an aluminium importer by 2009 instead of being a net exporter and domestic prices were likely to trade at a premium over international ones, Mr Zhang said.

JP Morgan forecast a net import of 150,000 tonnes of aluminium in 2009, from a net export of 545,000 tonnes last year.

It also projected the price of aluminium trading on the Shanghai Futures Exchange would rise 13.7 per cent to US$2,473 a tonne in 2009 from US$2,175 last year.