Alumina prices may average $450 in 2006

Jan 1 | Updated: Jan 2 2006, 05:40am hrs
Alumina prices may average $450 a metric ton next year, slightly higher than this year, according to Beijing Antaike Information Co. The cash price of alumina has risen 44% this year to a 16-year high of $585 a ton, according to data from the UK industry publication Metal bulletin.

The price may have peaked, said Wang Feihong, an analyst with Antaike, a research affiliate of the China Nonferrous Metals Industry Association. The average price for alumina, used to make aluminum, was $447 in 2005.

Alumina prices climbed because of demand from Chinese smelters to make aluminum, a lightweight metal used in products ranging from beverage cans to aircraft parts. Increasing supply in the H2 of next year will ease a shortage of alumina, said Wang. China will take a significant role in the expansion while mines in Brazil and other countries are increasing investment.

Alumina output in China will increase by about 2.5 million tons, or 29%, to as much as 11 million tons next year, Antaikes analyst Zhu Yan said on Saturday. Two tons of alumina, refined from bauxite, are needed to make a ton of aluminum.

Melbourne-based BHP Billiton said on December 19 it will spend $518 million on Brazils Alumar refinery, in which it has a 36% stake, to expand output to 3.5 million tons a year. Cia. Vale do Rio Doce last month said it approved spending $1.04 billion on its Alunorte alumina and bauxite complex in Brazil.

Higher alumina prices are fueling earnings at producers such as BHP and Glencore International AG while spurring closures and losses at smelting companies, mostly in China. Twenty-three of the nations smelters, which account for more than 60% of aluminum output, agreed to cut production by 10% to reduce demand for the raw material, the China Nonferrous Metals Industry Association said on December 1.

China will lower the import tax on alumina on January 1 to 5.5% from 8% to help cut costs for smelters. Yuncheng, Shanxi-based smelter Shanxi Guanlu Co said on December 19 it will shut one of its three production lines because of higher costs, losing 20,000 tons of aluminum production.