China aluminium smelters agree higher price ratios for 2013 due to alumina supply worries

Aluminium smelters in China, the world's top producer and consumer of the metal, have agreed on higher ratios of metal prices next year to value purchases of the raw material alumina, spurred by worries of tighter supply at home. Deals for 2013 alumina imports were set at about 16.1 to 16.3 percent of London Metal Exchange (LME) aluminium prices , free on board, higher than the 15.2 percent to 15.5 percent paid in 2012, traders and sources at smelters said.

Those percentages translate into prices of alumina. For example, the rate of 16.1 percent of Thursday's LME aluminium price of $2,133.5 per tonne would work out to a price of $343.5 per tonne of alumina, FOB.

Chinese smelters also accepted higher ratios in recent weeks, when LME aluminium prices fell below $2,000 per tonne, giving smelters the opportunity to lock in prices for shipments, sources at smelters said.

The remote northwestern province of Xinjiang is a rising power house in China's aluminium industry, and is expected to account for more than 10 million tonnes of capacity by 2015, about double that of Henan province, now the top metal producer.

Although Xinjiang added more than 3 million tonnes of aluminium capacity in the last two years, just a third of that is now operational, for lack of regular supplies of electricity, Yang Xiaoguang, an analyst at Jinrui Futures, estimated. Chinese smelters have also booked 2013 shipments using alumina index pricing with global producers such as Alcoa Inc . The index pricing is calculated on the basis of spot deals and operated by industry platforms such as Metal Bulletin. Alumina has traditionally been priced annually at between 10 and 17 percent of the London Metal Exchange-traded price. But global producers have said the LME-linked system no longer reflects alumina production costs and market fundamentals.

China's top alumina producer, Chalco has agreed to supply smelters in 2013 with shipments priced at about 17.2 to 17.5 percent of the average value of Shanghai aluminium contract prices, up from 16 to 17 percent this year, the sources said.

Higher 2013 terms could support spot alumina prices, as well as prices of the metal itself

China, also a world leader in alumina production, turned out more of the raw material than needed in January but second-half production dropped after bauxite supplies from Indonesia fell.

China's top five domestic alumina producers cut output 10 percent from June because of reduced supply of bauxite imports after top supplier Indonesia imposed a tax of 20 percent on exports of some metal ores in May and cut shipments.

China produced 18.16 million tonnes of primary aluminium in the first 11 months of the year, up 12.3 percent from a year earlier, official data showed. Production of alumina rose 10.3 percent from a year earlier, to 34.68 million tonnes. Imports of alumina soared 175.8 percent on the year to 4.63 million tonnes in the same period.