Aluminum Corporation of China Ltd, Chalco, the nation's largest producer of the metal, yesterday announced an 8.5 percent price rise for alumina, leading to speculation that profit margins of industries that rely on the raw material could be squeezed.

According to the statement posted on the company's website, Chalco increased the price of alumina to 3,800 yuan per ton from 3,500 yuan.

Alumina is the raw material for the production of electrolytic aluminum, which is the basic material used for aluminum-based products for the construction and auto industries.

Analysts said the price hike by Chalco was in tandem with the uptrend of imported alumina, which has increased by more than 40 percent since February to $430 per ton.

Industrial experts said the price increase would put pressure on many aluminum-processing companies because much of their profit is expected to be wiped out by the rising costs in a weak market.

"The rising material cost and the declining price of processed aluminum products will combine to squeeze the profit margins of many downstream enterprises," Liu Minda, an analyst on non-ferrous metals at Huatai Securities, said.

Jin Yu, general manager of the Keao Aluminum Company of Yanzhou Mining Group, told China Daily the company had no plans to cut its production in the near future despite the cost increase.

"The increased material cost will inevitably shrink the profit margin of processors," Jin said.

"But we have no plan to reduce our production, because we are confident that we can absorb the cost increase."

Shandong-based Keao is one of many aluminum processing companies in China.

The most actively traded aluminum futures contracts for February delivery on the Shanghai Futures Exchange, SHFE, dropped 10 yuan, to 18,150 yuan per ton. The contracts have tumbled an aggregate 1.9 percent during the past two weeks.

Li Jingyuan, an analyst at Haitong Futures, predicted that Shanghai aluminum futures prices would recover next week.

(China Daily November 28, 2007)