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Aluminium prices have witnessed a significant rise on the futures market since smelting companies in China announced they would reduce output.
Twenty-three smelters, which produce more than 60 percent of China's aluminium, said at the beginning of the month that they would cut production by as much as 10 percent in order to raise the price of the lightweight metal, used in aircraft and beverage cans.
The move also aims to contain demand for the raw material alumina, a white powder refined from bauxite ore, and force suppliers in countries like Australia to lower prices, the China Nonferrous Metals Industry Association said. Rising raw material costs against the slight price increase of aluminium have caused losses at 80 percent of the smelters.
Prices of aluminium for March delivery yesterday rose almost 1,000 yuan (US$123) per ton, or 6 percent, from the end of last month on the Shanghai Futures Exchange.
The price closed at 18,600 yuan (US$2,293) a ton yesterday in Shanghai, a record high since April last year.
On the London Metal Exchange, the aluminum price closed at US$2,217 a ton on Monday, a 10-year high since January 1995.
"It is hard to tell whether the rising trend will continue, which depends on demand and supply, but it is a good sign that Chinese producers are joining hands to sustain the growth of China's aluminium industry," said Zhu Yan, an aluminium analyst with Beijing Antaike Information Co, a research affiliate of the nonferrous metals association.
Since 2003, the price of alumina has increased from US$200 a ton to the current US$600 a ton, a record high. It means the country's aluminum smelters are struggling to see a profit, the industry association said. Alumina prices make up about 40 percent of costs for aluminum producers.
Since last year, more than 40 small aluminum plants in China have been shut down because of heavy losses, show statistics from the nonferrous metals association.
Market observers said the high price was irrational and not a true reflection of supply and demand. They said a reasonable price based on the current market situation should hover around US$450 a ton.
"Following production cuts, demand for alumina from China will decrease, causing the raw material price to fall in the long run," said Wang Zhongkui, another industry analyst with Antaike Information.
China, which accounts for 20 percent of the world's aluminum output, imported 5.76 million tons of alumina in the first ten months of this year, up 18.33 percent year-on-year.
According to estimates from the Ministry of Commerce (MOFCOM), the world's alumina market is expected to have a 400,000-ton supply surplus next year, compared to last year's 990,000-ton shortage.
"Therefore, the market change will lead to a price drop in alumina worldwide," the ministry said in a statement.
MOFCOM said that because of the reduction in aluminum production, China will have to import 6.85 million tons of alumina next year in order to meet demand, less than the projected figure of 6.9 million tons for this year.
(China Daily December 7, 2005)
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