Alumina prices tipped to fall in 2006

2005-10-06

Alumina prices will decline in 2006 as producers such as Rio Tinto increase production to meet demand, according to AME Mineral Economics. Global production of alumina would expand to 71 million tonnes next year, from 66 million tonnes in 2005, AME economist Rob Bishop told the Metal Bulletin's International Aluminium Conference in Atlanta. Output next year would exceed demand by about 500,000 tonnes after a 150,000-tonne shortfall in 2005. Alumina refiners are expanding after spot prices rose to their highest in at least 11 years. Mr Bishop said the raw material accounted for half of all costs in China's aluminium industry, the world's largest. About two tonnes of the white powder, which is refined from bauxite, is needed to make each tonne of aluminium. Spot alumina prices are at $US485 a tonne, the highest in at least 11 years, according to Metal Bulletin data. Spot alumina has gained 20 per cent this year. Rio began operations in November at its Comalco plant in Queensland, the first new alumina refinery to be built since the 1980s. The company raised its alumina output 45 per cent to 1.49 million tonnes in the first half. Vedanta Resources and Dubai Aluminium are among other metal companies planning additional production capacity. By the end of 2007 there would be "a large surplus" of alumina relative to demand, MrBishop said. Merrill Lynch analysts have made a long-range prediction about iron ore prices, saying they may be an average of 18 per cent higher from 2010 as demand increases and Cia Vale do Rio Doce, BHP Billiton and other producers seek higher prices to underpin expansion. Benchmark prices for the steel making ingredient may average $US26 a tonne, compared with long-term historical prices of $US20 to $US22 a tonne, Merrill analysts Vicky Binns and Andrea Weinberg predict. Vale, BHP and Rio Tinto are spending $US8.9 billion ($11.7billion) raising output after Chinese steel production doubled in four years, increasing demand for ore. The three biggest producers, which account for 73 per cent of seaborne supplies, may demand higher prices after soaring steel and labour costs swelled the cost of developing new projects. Iron ore prices are set annually in individual negotiations between producers and steel makers.