Chinese Aluminum Smelters Shut More Capacity as Prices Dive
Hong Kong. Chinese aluminum smelters are likely to close more than 500,000 metric tons of capacity in coming months as domestic prices fall below the cost of production amid slowing demand and plentiful supply, industry sources said.
However, further cuts of 1.5 million to 2.0 million tons would be needed this year to counter planned new capacity in the world’s top consumer and producer of aluminum and boost prices that hit a record low on Wednesday, they said.
China’s aluminum smelters shut about 2 million tons of capacity in the first half of 2014, pushing up prices to the year’s high in September, but nearly half was brought back on, supported by local government subsidies and lower raw material prices.
Another round of cuts began in November, and about 580,000 tons had been cut since then up to last week, with another 500,000 tons likely to be cut by mid-year, said Xu Hongping, analyst at China Merchants Futures.
However, last year’s restarts and new capacity, estimated at more than 4 million tons in 2014, have boosted China’s output to record highs since June.
The aluminum contract in Shanghai traded at a record low 12,445 yuan a ton on Wednesday, which a smelter executive said was below the cost of production and logistics for most of China’s estimated 30 million tons of operating capacity.
“This time the cut should expand to 2 to 2.5 million tons,” said the executive at a medium-scaled smelter, who declined to be named because he was not authorised to talk to media.
He expected smelters to start closing more capacity in the second quarter, since some local governments did not want the smelters to close before the Lunar New Year in mid-February.
Domestic prices could rise sharply only if total cuts in 2015 expanded to more than 2 million tons, said an official for a state-owned smelter.
China is expected to add about 4.5 million tons of capacity aluminum capacity this year, according to information provider SMM, although the impact will be spread over the year.
Traders say prices are also being hurt by slow domestic demand as China’s economic growth cools, while tight credit conditions are affecting producers of semi-finished aluminum products in Guangdong province.
One Guangdong producer planned to resell more than 100,000 tons of primary aluminum stocks for cash, the smelter executive said.
Banks have cut credit to metals firms after an alleged metal financing scam came to light in mid-2014.
Reuters
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