Aluminium smelters in China are likely to step up their buying of raw material alumina in the domestic and international markets before the end of the year as they increase capacity and take the view alumina prices will extend their strong run.

Strong buying could push up global prices of the raw material, which have already risen about 10 percent since June for delivery to China, helping to support global aluminium prices.

"Smelters have gone crazy this month buying alumina," said a trading manager at a private alumina producer. "Some merchants have also been building up stocks. Prices may stay strong for the rest of this year."



Smelters in northwestern provinces, including the largest aluminium-producing region of Xinjiang, were building up alumina stocks before winter, when rail and road transportation slows, traders and sources at aluminium smelters said.

Some smelters are increasing purchases to add to stocks after Chinese banks increased lending slightly, said an executive at a state-owned smelter, adding smelters had kept low alumina stocks in the first half when credit was tight.

"Alumina prices could rise to 3,000 yuan a tonne by end-2014," the executive said.

Reflecting mounting demand, spot alumina has risen to about 2,700 yuan ($439) a tonne in the domestic market from about 2,300-2,400 yuan in June, traders said.

A jump in smelting capacity will fuel demand.

Smelters may restart about 300,000 tonnes of idled aluminium capacity before the end of the year after starting about 500,000 tonnes since May, said Xu Hongping, an analyst at China Merchants Futures.

And they are likely to start production of about 2.2 million tonnes of new capacity in the second half, the bulk of it in the fourth quarter, Xu estimated.

Chinese importers paid about $360-$370 a tonne this week for Australian alumina, cost insurance freight (CIF) China basis, up from about $330 in June, traders said.

A trader who works for an international trading house said the firm had sold bonded alumina stocks in an eastern Chinese port at $375, adding some Chinese importers were building up stocks.

BAUXITE

Smelters expect alumina prices to remain strong next year as stocks of bauxite are depleted after Indonesia, China's top supplier, banned ore exports from mid-January in a move to force miners to build processing plants and smelters in the Southeast Asian country, sources at smelters and traders said.

Bauxite is the ore from which alumina is produced. China imported 8 million tonnes of bauxite in January, of which 6.1 million came from Indonesia. In July, imports were just 3.1 million tonnes.

China Hongqiao Group Ltd, the country's second-largest aluminium producer, said last month it had secured bauxite to replace supplies from Indonesia by adding contracts with miners in Australia and India worth more than 10 million tonnes per year for three to five years.

But other Chinese alumina refiners may struggle to find new supplies of bauxite, meaning global suppliers were likely to raise their prices for delivery in 2015, pushing up alumina prices in China.�