Chinese aluminium smelters, expecting alumina prices to fall further, are reluctant to build inventories of the raw material even though prices have plunged 36 percent in the past two months, industry officials said on Monday.
Their decision to hold off building inventories was further pressuring prices of spot alumina, they said. "Most Chinese are thinking the same - do not buy when the price is still falling," a smelter official in China's central province of Henan said.
China, the world's biggest buyer of spot alumina, is producing at least 60 percent more of the raw material this year, driving down prices globally. Industry officials estimated at least 5 million tonnes of alumina capacity would come on stream in the coming six months.
Overseas suppliers were offering spot alumina at about $320 a tonne to Chinese ports, against $500 in early July, traders said. But the offers were likely to be adjusted downward soon because one overseas supplier had agreed to sell at $250 a tonne for a shipment of 30,000 tonnes for late-September delivery to a Chinese port, one source said.
That price would be equal to 2,450 yuan duty-paid. "A deal, for now, has to be below $280 a tonne," a smelter official said, expecting the price to fall below $200 in coming months. He said prices for duty-paid imported alumina already in Chinese ports were likely to fall later this week, down from 3,800 yuan ($479) a tonne now.
Aluminium Corp of China Ltd (Chalco), the world's second largest alumina producer, cut its local spot alumina prices by 13.3 percent on August 7 to 4,900 yuan a tonne. But the price was still not competitive and it was forced to slash it by 22.4 percent to 3,800 yuan from September 1. "Other refineries are selling alumina at 200 yuan to 300 yuan below Chalco," the smelter official in Henan said. He said smelters that held yearly contracts with Chalco were delaying shipments and buying cheaper alumina from other refineries. "Smelters' attitudes are virtually the same," an official for a Chalco-owned alumina refinery said, adding the refinery's inventory was rising.
To encourage smelters to take contracted alumina, Chalco might reduce its prices next month, industry officials said. China's alumina production surged 50 percent on the year to 7.1 million tonnes in the first seven months this year.