Price-off of Domestic Alumina, Likely not Improved Until Year-end

According to industry sources in China, the price of China's alumina has been reduced by more than 10% since January and it is likely not to be improved by the end of this year, whose reason is that the lower production cost encourages refiners to increase the output.

Alumina is the main raw material to make aluminum, so the refinery usually sells alumina to the aluminum smelters. Aluminum is widely used in every field of our life from cars to cookers.

China is the world's largest aluminum consumer and producer. The price-off of Alumina could boost the production of China's aluminum and inhibit the demand to import. Alumina usually accounts for 40% of the primary production cost of aluminum.

According to the smelters, the price of China's spot alumina is about 2350-2550 RMB per ton, which is lower than 2800 RMB in January. Traders say the price is also lower than the dutiable price of imported alumina of 2550-2650 RMB.

By contrast, the price of aluminum in Shanghai rose more than 1% from January to 12785 RMB, which is restricted by big smelters and also has got the support the spot sales.

"The cost of imports has been higher than the domestic price of alumina this year, most imports belong to long-term contracts," a trade manager of state-owned aluminum smelter says. Because it is not authorized to comment on the media, he decline to be named.

China's alumina imports fell 40% from a year earlier in the 1Q of 2015.

The trade manager thinks, the production cost of many alumina refineries in China continues to be falling due to the price-off of coal and electricity. He estimates that the production cost is about 1600-2300 RMB per ton at present.

Some analysts say that it has declined by 200 RMB compared with the fourth quarter of 2014, and the improvement of profits makes refinery expand the production of alumina.

China's alumina production has achieved a new record of 4.8 million tons in March and April, whose annual output is equal of 57.6 million tons, but the annual production capacity of China's alumina is 60 million tons.

Analysts says that at least 2 million tons of new production capacity will put into operation in May and June. Most of them are all smelters, and it reduces their purchases for alumina.

The increasing of production will hit the price of domestic alumina in the second quarter even if there are about 2 million tons of new aluminum production capacity may be put into production.

The production of a ton of aluminum usually needs to use two tons of alumina. However, NicBrown, the research director of Natixis Commodities says the price-off of alumina may be a sign of the production slowdown of China's aluminum.