China Commodities Weekly - Chalco's alumina prices up - but not as much as it's rivals

SHFE copper prices slipped a little last week following declines on the LME. Increases in LME stocks weighed on the market, as did the rumours of large losses at a major UK hedge fund believed to be heavily long copper. The SHFE copper front month contract fell to Rmb54,650/t ($7,006/t) at the market close on Friday, a decrease of Rmb500/t ($64/t), or 0.9% from the previous week's close.

SHFE aluminium prices strengthened last week, with the front-month contract up by 0.6% to close at Rmb19,990/t ($2,563/t) on Friday. SHFE registered aluminium inventories declined by 9,094t from the previous week to 29,293t due to fabricators stocking up for the Chinese New Year period, when it will be difficult to get additional deliveries.

Chalco raised its spot alumina selling price last week by 50% to Rmb3,600/t($461/t) from the previous price of Rmb2,400/t($461/t), which had been in place since November of last year. This still leaves the Chalco price below the Rmb3,800/t ($490/t) set by a rival grouping of non-Chalco refineries. We estimate that (allowing for taxes, freight etc) the new Chalco price is equivalent to an fob Australia price of around $350/t ?in line with the recent Nalco tender. However, we would question how long such prices are going to last following the ending of the Guinea general strike.

Latest data indicates that there was much stronger growth in Chinese electricity generating capacity in 2006 than had been expected. According to the China Electric Power Industry Association (CEPI-A) Chinese electricity generation capacity in 2006 went up by 20.3% YoY or 105GW to 622GW. In 2007 there is expected to be an additional 98GW of new generating capacity installed, bringing total generating capacity to 720GW, an increase of 15.8%.

Tied in with this massive growth, the NDRC believes that, as 2007 will see an electricity supply surplus, it is the right time to close down small coal fired generating capacity. Once closed down, China can save more than 50 million tonnes standard coal equivalent per year? according to one official.

Last week, hot rolled coil prices reached $465/t ex-VAT, up 1.5% WoW and 6.4% MoM; cold rolled coil was also up by 0.7% WoW and 1.2% MoM, to $555/t ex-VAR. The Indian iron ore CIF price was quoted at $81/t last week, an increase of 1.3% WoW and 6.6% MoM. Domestic prices also edged up, with the Hebei 66% iron ore fines price reaching $86/t ex-VAT, up 0.8% WoW and 2.7% MoM.