(Yicai) Dec. 9 -- The imbalance between supply and demand in the Chinese aluminum oxide market has caused prices to soar more than 60 percent this year.

The tight supplies of aluminum oxides led China's most-active aluminum oxide futures contract to surge over 60 percent this year as of Dec. 6.

Tight supplies of bauxite, an aluminum ore used to produce aluminum oxide, limited the increase in aluminum oxide output, and the release of new capacities by downstream firms that use aluminum oxide to make electrolytic aluminum exceeded expectations, resulting in higher demand than supply, an industry analyst told Yicai.

China's aluminum oxide inventory totaled 3.8 million tons in the week ended Nov. 28, the lowest in five years, according to commodity data provider MySteel.

With higher aluminum oxide prices, the production costs of electrolytic aluminum surged this year, squeezing companies' profitability. They soared to an average of CNY21,000 (USD2,885) per ton, making nearly two in three electrolytic aluminum producers unprofitable, MySteel data showed.

The global output of electrolytic aluminum is expected to rise 2.17 percent to 72.3 million tons this year from the previous one, mainly because the production capacity of Chinese companies will likely jump 2.64 percent to 42.3 million tons in the period, according to data from the International Aluminum Institute.

Aluminum oxide prices have likely peaked in the short term, Guosen Securities’ futures analyst Gu Fengda said. But in the medium term, the impact from high demand end low supply will fuel aluminum oxide prices also in the first quarter of next year, he added.

However, the capacity of low-cost aluminum oxide is expected to exceed seven million tons next year, helping the industry to return to an oversupply situation, thus pushing prices down back to the historical average, Guosen Securities predicted.

Editors: Xu Wei, Futura Costaglione