HONG KONG/HANOI, Aug 25 (Reuters) - Vietnam's first alumina refinery will sell its material through tenders rather than directly to China's Yunnan Metallurgical Group under a 30-year sales agreement between the two firms, sources at Yunnan and the Vietnamese firm said on Thursday.

The 600,000-tonne capacity Tan Rai alumina refinery, controlled by Vietnam National Coal and Mineral Industries Group (Vinacomin), is set to start production in September using locally mined bauxite.

A Vinacomin manager who has direct knowledge of the tenders said the firm has invited various companies to join the bidding, without giving names.

"Who pays the best price will get the product," the Vinacomin manager in Hanoi said.

A spokesman for Vinacomin declined to comment.

 

Vinacomin and Yunnan hold a Memorandum Of Understanding under which the Vietnamese firm had agreed to sell 600,000-900,000 tonnes a year of alumina to Yunnan Metallurgical, which plans to supply the alumina to its smelter Yunnan Aluminium Industry Co Ltd .

But the MOU does not set a price for the alumina, which the firms need to negotiate before the delivery year, according to the Vinacomin manager and an official at Yunnan Metallurgical.

"I am not holding a high hope for alumina shipments (from Vinacomin) in 2011," said the Yunnan official with direct knowledge of the talks.

He added that the firm's aluminium subsidiary would be able to tap into rising Chinese alumina production, while supply in the international market remained sufficient.

Yunnan's subsidiary is also building a 800,000 tonnes a year alumina refinery in China's southwestern Yunnan region and the construction is expected to finish by the end of this year, he said.

ALUMINA WELL SUPPLIED

Traders said Vinacomin's offers were weighing on spot alumina prices, which have already fallen 12 percent this month due to reduced imports from China.

Spot Australian alumina was being offered at $360-$370 a tonne on a free-on-board basis, down from $410-$430 in late July-early August.

 

Trading sources said Yunnan had offered a pricing formula lower than the 15-15.5 percent of the London Metal Exchange aluminium prices many Chinese smelters have paid for 2011 alumina imports to Vinacomin, as it takes advantage of rising local output.

China used to be one of major alumina importers in the world but the country has ramped up production in recent years.

The country's alumina imports fell to a monthly record low of 59,095 tonnes in July, down 78.2 percent from a year ago.

China's production of alumina rose 22.8 percent on the year to 2.978 million tonnes in July, 5.2 percent lower than a monthly record of 3.143 million tonnes in June.