China's spot alumina prices have risen 7-9 percent since June due to increased demand and strong aluminium prices, and traders and analysts say prices could rise further in the second half on speculative buying.
China is the world's top aluminium producer and has been ramping up its output of alumina, the main material for primary aluminium production.
"Alumina prices are likely to rise gradually in the second half," said Yang Xiaoguang, analyst at Jinrui Futures, adding that he expected aluminium prices in China to remain strong in the second half and that would support alumina prices.
Spot alumina traded in China at 2,750-2,900 yuan per tonne this week, up from 2,550-2,650 yuan in early June.
Traders said speculators expecting higher Chinese alumina prices had built up stocks, cutting availability of the raw material in the spot market.
"People are speculating that alumina prices would rise. A lot of people are talking about buying and storing alumina using financing deals," a trader said.
Typically, more than 95 percent of the alumina produced in China is of a metallurgical grade, the remaining alumina output is chemical grade, used in abrasives, special glass, catalysts and other applications.
Aluminium prices spiked last week, up more than 3 percent -- highest weekly gain since February 2010 -- due to steady demand and speculation.
The front-month of Shanghai aluminium SAFc1, which reflect spot prices in China, hit 18,660 yuan ($2,900) on Monday, the highest level since August 2008, before closing at 18,560 yuan.
Jinrui's Yang said about 1 million tonnes of primary aluminium capacity was set to come onstream in the second half of this year, increasing alumina demand by about 2 million tonnes. He did not provide any details on new alumina capacity planned to come onstream during the same time.
About two tonnes of alumina are needed for one tonne of primary aluminium production in China.
State-backed research firm Antaike has forecast China's alumina capacity to rise to 46.44 million tonnes this year from 41.04 million tonnes in 2010.
TERM ALUMINA PRICES RISE
Increased aluminium prices have driven up term alumina prices which are based on Shanghai front-month aluminium prices, traders and smelter sources said.
Chinese smelters have contracted to receive term alumina for 2011 from top alumina producer Aluminum Corp of China Ltd (Chalco) at about 17.5 percent of average Shanghai aluminium prices.
The term alumina price would be 3,248 yuan per tonne based on Monday's closing of 18,560 yuan for the aluminium price, higher than 2,750-2,900 yuan in the spot market for non-Chalco alumina and 3,000 yuan for spot Chalco alumina.
Spot alumina prices fell 7 percent between March and early June 2011, boosting exports 809 percent from a year earlier to 12,565 tonnes in June 2011. Prices have rebounded since then.
But spot Australian alumina traded at about $410 to $430 per tonne on a free-on-board basis in the past two weeks versus $410 to $415 in June in the international market.
In China, alumina refineries typically deliver alumina to buyers in big containers or bags that hold 1.5 tonnes each. The bag packing allows buyers to store alumina in public or private warehouses.
China produced a monthly record of 3.143 million tonnes of alumina in June but its alumina imports dived 49 percent on the year to 72,243 tonnes in the same month.
The country produced a monthly record of 1.591 million tonnes of primary aluminium in June, which consumed about 3.182 million tonnes of alumina.
China also consumes roughly 100,000 tonnes of alumina a month for chemicals uses and that boosted total alumina consumption to about 3.282 million tonnes in June, indicating a minor deficit of 66,757 tonnes in the month. ($1 = 6.434 yuan)