Black China Blog

The following article comes from China Mining.

Alumina producers will continue to exercise restraint all next year, but the market will be in surplus as output is still likely to outpace aluminum smelter needs.
Recent restarts and new capacity will ensure ample supplies of the intermediate material, used to produce primary aluminum. This will act as a cap on prices and, if anything, they will drift lower.
Ralston Johnson of Brook Hunt, the metals arm of consultancy Wood Mackenzie, said he expected the alumina market to record a 1.0 to 1.5 million tonnes surplus next year.
“The surplus will be large enough for people to know that alumina is readily available, that there’s no shortage,” Johnson told Reuters.
Outside top aluminum producer China, he predicted little demand for the material from reactivations of smelter capacity, mothballed after the slump in global aluminum consumption from the key car and construction industries.
But he thought alumina producers could moderate their output to reduce over-supply if prices trended below costs.
“I don’t expect prices to revisit the March lows,” Johnson added, predicting an average of $270 a tonne next year.
By March, in the depths of the global economic crisis, spot alumina prices had fallen to around $180 a tonne.
They have recovered in recent months and stand at around $300 a tonne on an Australia FOB basis, due partly to production cuts, as well as higher energy and aluminum prices.
Stronger aluminum prices help to support prices for alumina sold through long-term contracts — which are normally settled at 12-13 percent of the London Metal Exchange (LME) cash aluminum price.
Global aluminum prices rose sharply after falling to a seven-year low of $1,279 a tonne in late February.
By August, the LME three-months price had risen to $2,115 and has since held on to most of those gains. At 1220 GMT they were indicated at $2,032/42 a tonne.
Some analysts expect production and smelter demand for alumina to be evenly matched and limit price declines in 2010.
“Alumina prices are not going to move too far from current levels,” said Nikhil Shah, of industry consultants CRU Group.
“I don’t think we’re going to see prices significantly below $250/260 a tonne. There’s good support above that level.”

CHINA ACTS QUICKLY

Independent consultant James King said swift cutbacks by marginal producer China had prevented prices falling even lower than the $180 reached in March.
In a real slump they could have dropped as low as $130.
“Chinese producers open and close more rapidly than Western producers. Their behavior has stabilized the market. It’s probably why prices are where they are now,” he said.
King forecasts global smelter grade alumina output will rise to 77.65 million tonnes next year from 71.6 million this year. Consumption by smelters in 2010 would be lower at around 75.2 million tonnes.
NEW CAPACITY

A large amount of new alumina refinery capacity is set to come on stream in the next few years, mainly in Brazil, but also in China, Australia and India.
Some 16.0 million tonnes per year could be added by 2013, which means some capacity idled in the recent downturn might need to stay closed permanently, according to King.
“There may well be permanent shutdowns in the U.S., Canada and Western Europe, but not Australia, Jamaica and Suriname,” he said, suggesting partial reductions rather than full scale refinery closures.
For now he estimated around 92 percent of the industry was covering operating costs at current price levels, with 82 percent covering total costs.
Alumina restarts in China are being absorbed by domestic smelter demand growth, but outside there it’s a somewhat different picture.
Johnson referred to recent restarts of mothballed production in Canada, the United States, Ireland and Romania.
“There’s not much in the way of metal restarts to soak that up,” he said.