SHANGHAI (Interfax-China) -- China's alumina prices will fall from current levels in the second half of this year, pushed down by a heavy market surplus, though are unlikely to stay low for long due to high production costs, industry analysts told Interfax July 4 at an industry conference in Dalian.
"The surplus of alumina on the Chinese market will pull down domestic alumina prices to as low as RMB 3,000 ($437.07) per ton in coming months. Downstream primary aluminum producers have stated they may postpone some projects planned for next year, which would exacerbate the current surplus," analyst Wan Ling, with London-based CRU, said.
The Aluminum Corporation of China Limited (Chalco), the country's largest alumina and aluminum producer, currently offers spot aluminum at an ex-works price of RMB 3,500 ($509.91) per ton, while non-Chalco producers lifted prices from RMB 3,300 ($480.78) per ton to RMB 3,500 ($509.91) per ton on July 4, citing growing production costs.
Beijing-based China Commodity Market (CCM), a leading information provider, released predictions at the forum that China's alumina surplus will stand between 900,000 tons and 1.65 million tons this year, depending on the speed with which domestic alumina and aluminum producers can complete capacity expansion projects.
China will produce as much as 27.23 million tons of alumina this year, while national production capacity will rise by 37 percent year-on-year to 36.47 million tons, according to CCM's forecast. Based on alumina imports and exports, as well as production volumes over the first five months of this year, CCM's calculations suggest there was a surplus of around 462,800 tons of alumina on the Chinese market by the end of May.
Ru Xiaojie, an analyst for Henan Chalco, said that the behavior of alumina prices over the coming months is uncertain, as it remains to be seen whether alumina producers cut production due low prices, or whether smelters do indeed postpone commissioning new primary aluminum projects. She suggested that a drop in the price of alumina to RMB 3,000 ($437.07) per ton would trigger output reductions by the majority alumina producers in Shandong Province.
"At over RMB 3,000 ($437.07) per ton, Shandong alumina producers have the highest production costs out of all Chinese alumina producers, as they almost all use imported bauxite," she said.
Wang Guilan, an analyst at Shandong Chalco, said that up to 99 percent of the country's bauxite imports are supplied to Shandong alumina producers. In China, an average of 2 tons of alumina is used to produce 1 ton of primary aluminum.
A Macquarie Bank analyst surnamed Liu said that global alumina prices in the next six to 12 months will trade between $400 and $450 per ton, supported by higher production costs from increasing freight rates as well as rising oil, electricity, and raw material prices.
China recently raised power tariffs for aluminum smelters from July 1. An aluminum trader based in Beijing told Interfax that he had not yet heard of production cuts from any major aluminum producer. "However, as the government continues to raise power tariffs for energy intensive sectors, some smelters are expected to cut production to minimize losses."
Henan Chalco's Ru predicted that aluminum prices in China will range between RMB 18,500 ($2,695.26) and RMB 19,500 ($2,840.95) per ton for the rest of the year.
Macquarie's Liu said that domestic aluminum prices will be supported by rising costs for major aluminum producers, and that downward pressure from growing stockpiles will only be short-term.
According to a CCM forecast, China's primary aluminum production will stay between 15.18 million tons and 15.76 million tons this year, with the final figure dependent on how aluminum prices track in the second half of this year. The country's aluminum capacity is expected to rise 35.9 percent year-on-year to 19.54 million this year.
Three-month London aluminum price ended down $11.2 on July 3 at $3,184 per ton, though the price was 11 percent higher than that recorded a month previous.
(c) Interfax-China 2008. For further information regarding Interfax China Commodities Daily Reports, contact David Harman at email@example.com. Interfax also publishes a comprehensive China Grains & Soft Special Report in March 2008, contact David Harman for details.