The price of alumina, used to make aluminum, must rise to spur supply after Indonesia’s mineral export ban drove the market into deficit, according to Goldman Sachs Group Inc.

Alumina, a key ingredient in primary aluminum production, needs to increase to $370 a metric ton by the second quarter of next year and $380 in the second half to encourage supply growth and push Chinese producers to use more-expensive imported bauxite, the bank’s analysts including Max Layton wrote in a report dated yesterday. Alumina’s supply deficit will widen to 639,000 tons in 2015 from 138,000 tons in 2014, they said.

“There is an unprecedented idiosyncratic factor impacting the alumina market at present - Indonesia’s bauxite export ban,” the analysts said. “The ban on bauxite exports has driven the bauxite market into an ongoing deficit, and has contributed to the slowdown in alumina output growth in China.”

Aluminum overtook nickel this week as the best performer among the six major metals traded on the London Metal Exchange this year. Prices for both metals have been pushed higher since January, when Indonesia implemented the ban. The country accounts for 10 to 15 percent of global bauxite supply and about 50 percent of shipments to China, the world’s largest aluminum producer, according to Goldman Sachs.

China may face a so-called bauxite gap of 10 million to 15 million tons next year as the country’s stockpiles run down, Andrew Wood, group executive of strategy and development at Alumina Ltd. told a conference last week in Singapore. Chinese inventories of Indonesian ore hoarded before the ban have been falling at a rate of 1 million tons a month and could dip to as low as 20 million this year and 8 million by the end of 2015.

Mine Development

Rising alumina prices are needed to encourage 6 million tons of production growth and related bauxite mine development, which is required to meet alumina demand growth next year, the analysts said. The surge will also encourage smelters in China’s eastern province of Shandong to use higher-cost imported bauxite as stockpiles fall, they said.

Increasing alumina prices imply a $130 to $140 increase in costs for producing aluminum, Goldman Sachs said. Five to six tons of bauxite yield about two tons of alumina, which is used to make about one ton of aluminum, according to the bank.

Goldman said its LME aluminum price forecast for $2,050 a ton in six months and $2,100 in 12 months are “increasingly skewed to the upside.”

Aluminum for three months delivery in London were little changed at $2,057.25 per ton at 2:02 p.m. in Shanghai. The metal gained 14 percent so far this year, compared with nickel’s 11 percent rise. Prices of alumina free-on-board from Australia advanced 14 percent since July 31 to $355 a ton at the end of October and reached $357.50 on Sept. 26, the highest since 2011, data from Metal Bulletin showed.