Alcan Says Alumina Prices May Gain Next Year as Costs Increase

Dec. 6 (Bloomberg) -- Alcan Inc., the world's second- largest aluminum producer, said prices for the raw material alumina could rise next year to keep pace with costs.

Prices could rise 50 percent to between $250 and $300 a ton on average next year, from prices as low as $200 now, said Jacynthe Cote, the head of Montreal-based Alcan's bauxite and alumina unit.

China, the world's top user and producer of aluminum, is increasing production of alumina by 45 percent next year, to meet soaring domestic demand, Beijing Antaike Information Development Co. said yesterday. The new capacity brought on in China is getting more expensive, and costs of raw materials such as caustic soda have also risen, said Cote.

``The new alumina refineries moving through 2007-2008 will be positioned largely in the (higher end) of the industry cost curve,'' said Cote at a Melbourne mining club lunch speech.

About two tons of alumina makes one ton of aluminum, according to Alcan, which produced about 5.6 million tons of alumina last year.

Shares of Alcan have risen 19.7 percent this year, and closed at C$57.19 in Toronto yesterday.

Surplus Market

Global prices of alumina have fallen 62 percent this year to $225 a ton this month, according to Metal Bulletin. Some is being sold at $200 to $210 a metric ton, Cote said. The average cost of production in the alumina industry is slightly above $190 a ton this year, she said.

Beijing Antaike, which advises the Chinese government on industry policies, expects prices to average 2,000 yuan ($255) a metric ton in 2007, compared with an average of 4,000 to 4,500 yuan this year.

The alumina market will be in surplus this year, due to new production capacity from producers in China and others including Rio Tinto Group, Cote said. It will likely get back into balance in the next two to three years, with as much as 9 million metric tons of capacity to close by 2009 due to higher costs, she said.

Global demand for alumina may rise by 5.5 percent a year to 2010, with China accounting for 54 percent of the new demand, she said.

Rising labor costs is deterring Alcan and partners from wanting to expand its Queensland alumina venture in Australia, Cote said at a press conference after the lunch.

Alcan is studying eight options to power its Gove refinery in the Northern Territory in Australia, and will make a decision during the next six months, she said. It wants to switch from oil to cut down on greenhouse gas emissions, and was previously considering using gas from a proposed project to pipe the gas from Papua New Guinea to Australia by Exxon Mobil Corp.

The cost of the project has risen to $5.5 billion from an initial estimate of $3.5 billion in 2002.

The rising costs of the pipeline project is a ``threat,'' though Alcan ``remains supportive,'' Cote said. One of the options involved studying coal gas seams with Australia's Arrow Energy NL, said David Sutherland, director of business planning at Alcan South Pacific Pty. at the conference.

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