High Bauxite Price may Hit China '08 Alumina Output

HONG KONG, Nov 13 - Alumina output growth in China may be stunted next year by high prices of imported bauxite, encouraging aluminium smelters to secure alumina through term import contracts, smelter sources said on Tuesday.

China, the world's top producer of aluminium, has been rapidly boosting its output of alumina, the key raw material used in making aluminium.

"Chinese smelters may want to import to secure a stable supply of alumina," a senior executive at one northern Chinese aluminium smelter said.

Industry sources had forecast that China's alumina production could expand to 30 million tonnes next year from this year's estimated 22 million tonnes -- a hefty increase of about two-thirds from last year.

Of the 2008 alumina output, at least 7 million tonnes are expected to be produced from imported bauxite, but worries about price and supply have stirred doubts.

"We are not particularly confident about the supply from Indonesia," the smelter executive said.

Indonesia accounted for nearly 70 percent of China's imports of bauxite, the key mineral input for alumina production, in the first nine months of this year.

The executive said many smelters were worried that Indonesia would change its export policy. A trade official said in August that the Indonesian government planned to tighten exports of some mineral products, including bauxite.

The executive added that his smelter wanted to sign 2008 alumina imports at a price below 12.8 percent of the world aluminium price. It had paid 13 to 14 percent for 2007 term alumina imports.

TERM SHIPMENTS

Lower-than-expected alumina production could support prices in China, where Aluminum Corp of China Ltd is the top alumina producer.

But analysts have predicted that global alumina production will increase next year, helping to cap world prices. Output will reach 96.24 million tonnes in 2008, according to the Reuters Metal Production Database.

Beijing may also consider cancelling a 3 percent tariff on alumina imports next year, making them more attractive, smelter sources said.

China imported 4.4 million tonnes of alumina in the first 10 months of this year, down 23 percent from a year earlier due to increased domestic output, and the bulk were term shipments.

The rise in Chinese alumina output has also driven up bauxite prices.

Spot imported bauxite prices had risen to nearly $80 per dry tonne versus $70 to $75 in September and $60 in August, due to strong Chinese demand and high freight costs, traders said.

One trader said some term Indonesian bauxite for 2008 shipments to China had been set at about $18, based on free-on-board, versus around $17 this year.

When delivered to Chinese ports, the 2008 term price would rise above $70, based on current freight charges, compared with about $44 for term shipments this year.

"High prices are going to slow down the alumina expansion," the trader said.

Industry sources said a large alumina refinery that relies on imported bauxite was slowing down the construction of a 2 million-tonne-a-year facility in Shandong province on China's eastern coast, due to high bauxite prices.

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