China's CPI Mengdong Energy Group, the parent of smelter HMHJ Aluminum, has agreed to import 2.5 million tonnes of alumina from international trading house Trafigura Group, trading sources said on Monday.
The alumina will be shipped in equal amounts to the Chinese buyer over 10 years from 2010, said an industry source close to the buyer, a subsidiary of China Power Investment Corporation.
The alumina will be priced at less than 14 percent of the price of the three-month aluminium contract of the London Metal Exchange MAL3. The contract also set the maximum and minimum prices for alumina, the main material for production of aluminium.
That term price was about 10 percent lower than prices for current spot alumina to China, based on Friday's LME aluminium prices at $1,705 per tonne in London.
Spot alumina to China was being offered at about $265 per tonne to Chinese ports, traders said.
The alumina will be given to HMHJ, the source said. The imports are to secure supply of alumina for the smelter.
Trafigura's contract will cover 18 percent of HMHJ's alumina needs in 2010, which are about 1.4 million tonnes.
HMHJ's facilities in Inner Mongolia are capable of turning out 700,000 tonnes of primary aluminium in 2010 and that output will consume around 1.4 million tonnes of alumina.
Two tonnes of alumina are normally needed to make one tonne of primary aluminium in China, the world's top producer of the metal.
It is a way that the aluminium smelter locks up the material supply, Judy Zhu, commodity analyst at Standard Chartered Bank (China) Limited said.
A trading manager at a large aluminium smelter said CPI and Trafigura's contract was unlikely to increase supply of alumina in China given the delivery time was for 10 years.
China produced more than 90 percent of its alumina needs in the first half of this year at 10.62 million tonnes.
Aluminum Corp of China Ltd is the top producer of alumina in the country.
(Editing by Clarence Fernandez)