It is reported that Chinese aluminium smelters have agreed to pay more for imported alumina in 2010, a move that will reduce margins as they scurry to secure feedstock for new capacity.

Term prices for imported alumina will rise to 14.5 percent to 15 percent of the price of aluminium on the London Metal Exchange, currently at $2,250 a tonne, per tonne of alumina.

The pricing, on a free-on-board basis, is equivalent to $326-$337 per tonne based on Wednesday’s aluminium prices. It takes two tonnes of alumina to make one tonne of refined metal.

In 2009 the ratio was 13.5-14.5 percent for the bulk of term imports.

Smelters expecting higher production next year were keen to secure term alumina, given sharp gains in international spot prices to $340-$350 per tonne to Chinese ports versus about $265 in July.

“Chinese smelters’ output expansions are running ahead of local alumina expansions,” a smelter official said.

But only top alumina producer Aluminum Corp of China Ltd was willing to supply term alumina in the country, forcing smelters to look overseas.

Smelters had paid 15-18 percent of aluminium prices on the Shanghai Futures Exchange for Chalco’s term alumina in the past 3 years and would pay 17 percent for next year’s shipments, they said.

Chalco, with an annual capacity of 4 million tonnes of primary aluminium and 11 million tonnes of alumina, had restarted all its idle alumina and aluminium capacity, company officials said last week.

Smelter and trading sources said increased term bookings were likely to raise China’s imports of alumina, the main material for production of the metal, next year from this year’s likely imports of over 5 million tonnes.
Higher imports would trim an expected surplus in the international market next year but could weigh on domestic spot prices.

State-backed research group Antaike has predicted China’s primary aluminium production would rise 25 percent to 17 million tonnes next year after an expected 0.2 percent rise this year, due to expanded capacity.

Alumina consumption is expected to rise 23 percent to 33.9 million tonnes and production to increase 26 percent to 30 million tonnes, which would leave a deficit of 3.9 million tonnes.

Chinese spot alumina prices have risen over 30 percent so far this year, to 2,650-2,700 yuan per tonne on Wednesday.

It is showed from the General Administration of Customs on Tuesday that China imported 194,388 metric tons of refined copper in November, up 37% compared with the same month last year.

Imports were up 15% from 169,374 tons in October.

In the January-November period, imports surged 137% on year to 2.94 million tons, customs data showed.

It is showed from a survay of analysts that a key raw material for steelmakers – iron ore price, is expected to rise 20% next year as surging demand from China continues to drive the market, though the Chinese industry already is signaling a tough line in annual contract negotiations, a survey of analysts showed.

The annual contract price for iron ore fines, free on board, from Australia with a 62% ferrous content is forecast to rise to $71.89 a metric ton in 2010, compared with $60.14/ton this year, according to a Dow Jones Newswires poll of 12 analysts.

Higher iron ore prices point to higher costs for steelmakers. About 1.6 tons of iron ore is used to produce a ton of steel.

“While we expect some easing in Chinese import demand in the near term due to restarts of domestic Chinese iron ore production, the recovery in non-Chinese demand should be large enough to offset this,” Macquarie Research analyst Jim Lennon said in a note to clients on Dec. 15.

China is the world’s largest iron ore importer and consumer. Its demand for seaborne iron ore this year increased nearly 40% to 612 million metric tons, even as demand in the rest of the world tumbled 30%, Macquarie estimates. China’s demand should grow to 654 million tons next year, underpinning a 12.5% year-on-year rise in global demand to 1.01 billion tons.

Bulk commodities like iron ore are priced on annual contracts as well as traded on spot markets. Brazil’s Vale SA, and Anglo-Australian Rio Tinto PLC and BHP Billiton Ltd. account for almost 70% of the seaborne market and one of the miners generally leads contract talks with steelmakers.

The 2009 annual contract price fell 33% compared with 2008. Spot iron ore prices peaked at slightly more than $200/ton in March 2008 after falling as low as $59.10/ton in March 2009, according to the Steel Index’s iron ore fines index for 62% ferrous content with delivery to China, freight and insurance included.

Spot iron ore prices hit a 12-month high of $107.40/ton Friday and on Monday traded at $106.90/ton, according to the Steel Index. The spot iron ore price is 77.8% above the annual benchmark price struck between miners and Asian steelmakers outside China. Adjusting for freight and insurance, spot iron ore prices are 49% higher than the current benchmark price.

China’s steelmakers don’t appear ready to accept a sharp rise in prices. Early this year lead negotiators at the China Iron and Steel Association pushed for steeper discounts than afforded rivals in Japan, Korea and Taiwan, but never settled on a final contract for 2009. Instead China’s companies have been buying iron ore on spot markets or at provisional contract prices that are in line with the other settlements in Asia.

China has signaled a tough line for 2010.

It is said from Ma Guoqiang, general manager of Baoshan Iron and Steel Co. last week that because there was still pessimism over the financial situation for global steel firms this year, it was unlikely that iron ore prices would rise next year.

2009        2010        2011

=========================================================

AVERAGE Price            $60.14      $71.89      $76.92
AVERAGE Price Rise                      20%          7%

MEDIAN                                      20%          5%
Maximum                                    30%         30%
Minimum                                     10%         -9%
Number of Contributors                  12          12

=========================================================

Last
Contributors                 Update        2010        2011

BofA Merrill Lynch         Nov           15%        15%
Barclays Capital             Oct           20%        10%
BMO Capital Markets      Jul           10%         4%
Citigroup                     Oct           15%         0%
Credit Suisse                 Oct           15%        15%
CRU Group                     Dec           25%        10%
JP Morgan                     Dec           20%        30%
Macquarie                      Dec           30%         5%
Morgan Stanley              Oct           15%         5%
Societe Generale             Dec           20%        -9%
UBS                              Aug           20%         0%
Anonymous Bank 1         n.a.          30%         0%

It is reported from the Xinhua News Agency over the weekend that Jiangxi Copper Co. has started a project to increase the copper concentrate output from its Jiujiang mine.

The project, scheduled to be completed by 2010, aims to raise annual concentrate output to 14,800 metric tons from the current 6,000 tons, according to the report.

The Jiujiang mine is rich in copper and sulfur, with around 1.65 million tons of copper mine reserves.

It is reported that Zhongjin Gold Corp Ltd, China’s biggest publicly traded gold miner by market share, today announced that it will issue RMB 600 million in 365-day bills on Dec. 24.

The company said in a statement that this batch of notes will be issued at face value and the coupon rate will be determined during the process of book building.

The bills will become tradable on Dec. 28 and the value date will be Dec. 25, said the company.

China Lianhe Credit Ratings Co has rated the bills and the issuer A-1 and AA+, respectively. Bank of Communications Co Ltd and China Zheshang Bank Corp have been assigned as the joint underwriters for the sale.

The proceeds from the issuance will be used to pay back loans and replenish working capital, said the company.

It is said from its president on Friday that Chinese metals conglomerate, Aluminum Corporation of China , is on the lookout for opportunities to acquire mining assets overseas as it restructures amid fierce competition.

The firm will also seek joint ventures and strategic cooperation with suppliers of resources, energy and raw materials, Xiong Weiping told a conference.

China’s aluminium industry has entered a phase where there is overcapacity, cut-throat competition and low margins, he said.

“Chinalco must adopt profound business restructuring in order to maintain our leadership in the industry,” he also said.