Aluminum Corp of China (Chalco), the country's largest producer of the metal, raised its spot alumina price by 8.5 per cent yesterday to reflect tightening supply.
The Beijing-based company boosted the price to 3,800 yuan a tonne, effective yesterday, from 3,500 yuan earlier. Chalco turns alumina into aluminium at its smelters before selling the metal to manufacturers.
The import price for alumina, including cost, insurance and freight, was about US$430 per tonne and supply was tight, Chalco said. The increase was a quick turnaround as the company had earlier cut the spot alumina price 10 per cent to 3,500 yuan a tonne on September 13.
The price rise, the first by the company since March, reflected increasing demand, said Zhang Xi, analyst at UOB Kay Hian Investment.
'The discount between aluminium trading in Shanghai to that on the London Metal Exchange is narrowing; stockpiles at London Metal Exchange are falling; all these signal that aluminium price will rebound in the near term,' he said.
He added the price rise would not have much impact on Chalco's profit as less than one-third of alumina it produced was for external sale.
However, tightening supply and price rises would help to push up aluminium price and boost Chalco's margin.
The mainland is the world's biggest producer and consumer of aluminium, producing 16.11 million tonnes of alumina in the first 10 months this year, up 44.7 per cent year on year, according to the National Development and Reform Commission, the country's top economic planning agency. Aluminium production rose 34.6 per cent to 10.03 million tonnes during the period.
Earlier this month, CLSA raised its forecast for aluminium prices by 19 per cent to US$1.25 per pound next year to reflect higher costs on the mainland after the removal of preferential power tariffs and higher alumina prices on increased bauxite costs, which will impact production growth rates.
The investment bank also revised up its free-on-board alumina price forecast 5.6 per cent to US$380 a tonne next year and 11 per cent to US$400 a tonne in 2009.
'We expect China's aluminium supply and demand balance will be improved as more small marginal producers will be squeezed out because of rising production cost and stricter industry standards,' investment bank ICEA said in a report.
Shares of Chalco closed up 0.49 per cent at HK$16.32 yesterday.
The producer raised the spot alumina price yesterday by: 8.5%