China Aluminium Pull-back Pressures Alumina Prices

BEIJING, May 5 -- Flagging Chinese aluminium demand is set to end this year's 30 percent rise in spot prices for the raw material alumina, smelter sources said on Thursday.

    China is facing an oversupply of aluminium because of a collapse in demand, increasing domestic production and huge import volumes.

    Some smelters had restarted idle capacity to take advantage of rising prices, but aluminium prices slipped in the second half of April, forcing smelters to scale down their restarts.

    "It's all about prices," said a sales manager at a smelter which had planned to restart a total 500,000 tonnes of capacity.

    "We restarted about 200,000 tonnes of capacity and have stopped restarting the rest," he said.

    Fewer restarts should in turn reduce alumina demand in China, the world's top consumer and producer of aluminium.

    "Alumina prices will fall. But the downside is limited as alumina refineries would make losses," said Heng Kun, Shanghai-based analyst at Essence Securities.

    Spot alumina is trading at around 2,100 yuan per tonne, down from 2,300 yuan at the beginning of the month but up from January's 1,800-2,000 yuan, smelter sources said.

    Top producer Aluminum Corp of China Ltd is still offering spot alumina at 2,300 yuan, according to its website, www.chalco.com.cn.

    Chalco has raised prices twice this year after a run of cuts which ended on Jan. 1.

    "Alumina prices are falling," said a trading manager at a large aluminium smelter. "Aluminium prices have dropped and that is reducing smelters' cash to buy alumina."

    A Chalco official said the firm was still watching aluminium prices and had not restarted idle capacity. Chalco has shut about 960,000 tonnes of aluminium smelting capacity and more than 4 million tonnes of alumina refining capacity since last quarter.

    Smelter officials had expected 4 million tonnes of Chinese smelting capacity to restart overall, but the sales manager and a smelter official in Guizhou province estimated the actual figure was about 1 million tonnes, while the trading manager put it at 2-3 million tonnes.

    Spot aluminium prices rose 22 percent in the first quarter after China's State Reserves Bureau bought 590,000 tonnes of primary aluminium in December and February, part of a three-year plan to buy 1 million tonnes to support local smelters that face weak demand. By contrast, prices on the London Metal Exchange fell 10 percent in the quarter.

    Strong Chinese prices not only encouraged smelters to restart capacity and buy alumina but also drove up aluminium imports, which jumped 1,487 percent on the year to 85,965 tonnes in March.

    As a result of the restarts and imports, increased supply has driven down Chinese aluminium prices more than 7 percent this month to 13,025 yuan a tonne on Thursday.

    Lower prices could also weaken Chinese alumina imports, which surged 39 percent on the year in March. Australia is China's biggest supplier by far, with India in No.2 spot.

    Spot foreign alumina was being offered to China at around $250 a tonne, down from around $270 in early April but up from $210-220 last month.

    (Source: Reuters)