Aluminum Corp of China Ltd (Chalco), the largest domestic producer of the metal, yesterday said it had raised the oxide aluminum price 50 percent due to surging demand from downstream ingot producers.

 

The price of the raw material increased to 3,600 yuan per ton.

 

"We raised the spot price of oxide aluminum basically in accordance with the current market fundamentals," said a Chalco spokeswoman.

 

But industry sources expected the supply and demand imbalance would soon correct itself and the price would decline in the longer term. Aluminum consumers usually increase stockpiles before the long Spring Festival holiday break, fueling temporary domestic demand. Industry experts considered this a major cause of the current price bound in oxide aluminum.

 

"Despite the price increase of aluminum oxide by Chalco, the downward trend will resume in the long run," said Du Xiaohua, an analyst with China International Futures (Shanghai) Co Ltd.

 

Price fluctuations mainly hit small aluminum producers the hardest, because they have to rely on the spot market for supply of basic materials, experts said. The big aluminum producers, who also manufacture the intermediary materials, are shielded from temporary market anomalies.

 

The larger downstream manufacturers usually try to hedge against price fluctuations by securing long-term supply orders at prices set in the domestic futures market.

 

Last year, the falling price of oxide aluminum coinciding with the rising price of aluminum ingots seriously cut into producers' profits, but benefited many aluminum ingot makers.

 

"It is high time for Chalco to increase the price to levels that reflect the demand and supply situation now," said Li Rong, an analyst with Dalu Futures Co Ltd.

 

Industry experts estimated that the latest oxide aluminum price jump would have a limited impact on the profit margins of aluminum ingot producers.

 

"There is room in the market for a further increase in aluminum ingot prices to offset the increased cost of intermediary materials," said Ge Jun, an analyst with Changjiang Securities.

 

And the rapidly increasing domestic capacity for the manufacture of oxide aluminum is widely seen to be a major factor behind the falling price trend in the longer term, the experts said.

 

The higher price of oxide aluminum in the domestic market is expected to have an impact on world prices because China is also a major importer of the material.

 

"The spot price of oxide aluminum is subject to the market fundamentals, but not the quotation set by one or two producers," said Zhang Wenwei, board director of Yunnan Aluminum, an aluminum oxide buyer.

 

Zhang also added that the price increase would not have a big influence on his company's profit.

 

Aluminum was priced at $2,722 per ton on the London Metal Exchange at 5pm (Beijing time).

 

(China Daily February 2, 2007)