Alumina too cheap despite 28pc price rise, producer says

THE price of alumina has jumped 28 per cent in the past year but is still too low, according to Alumina Limited.

The strong Australian dollar and higher energy prices were constraining its performance, the company said.

Margins for the commodity were tighter than they should be and its price did not reflect the cost and economics of producing and selling it, chairman Don Morley said.

China had been able to increase alumina and aluminium production to meet demand, which had limited price increases.

"This has limited aluminium price increases and meant that aluminium has underperformed relative to other commodities," Mr Morley told shareholders at Alumina's annual meeting.

"Spot and index alumina prices have strengthened to around $US420 ($391.70) per tonne and aluminium prices to more than $US2700 per tonne.

"However, the strength of the Australian dollar and higher energy prices remain a constraint on . . . financial performance."

Chief executive John Bevan told shareholders global demand for aluminium was expected to increase by 12 per cent this year because of China-driven growth.

The Melbourne company has a 40 per cent stake in Alcoa World Alumina and Chemicals.

AWAC was the world's largest alumina business, with 17 per cent of global production, and likely to post record production again this year, Alumina said.

It would be a second consecutive year of double-digit growth, Mr Bevan said.

"Growth outside of China is expected to be over 10 per cent.

"Demand from all sectors, with the exception of building and construction in the developed world, is strong, with vehicle production growing, and increased aluminium usage in vehicles."

In China alone, 120 million vehicles are expected to be built over the next five years, he said.

AWAC bounced back last year to post a $US34.6 million full-year profit, compared with a $US23.7m loss in 2009.

AWAC's production rose by 12 per cent last year, due in part to China's huge demand for the commodity, the company said.

Mr Morley attacked the proposed carbon tax, saying China's alumina and aluminium industries did not pay a similar tax and would shift production away from Australia if one was introduced here.

"In this global marketplace, a carbon price mechanism which increases the costs of producing alumina and aluminium in Australia will shift production and emissions from Australia to a country with a lower, or no, carbon cost," he said.

Alumina shares were up 2c at $2.28 yesterday.

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