China to reduce smog pollution cut down excess capacity
Reuters reported that the Chinese government’s campaign to reduce smog pollution and whittle down excess production is set to take around a tenth of its aluminum smelting capacity out of the market by the year-end, potentially adding fuel to a months-long price rally. That impact could have been even more severe - if the world’s largest aluminum producer, privately-held China Hongqiao Group, had been forced to cut output by 30 percent this winter. But, in an apparent reprieve late last week, its cuts are likely to be far less than that.
China last year accounted for over half the world’s annual primary aluminum production of almost 59 million tonnes, according to the London-based International Aluminium Institute.
It has annual aluminum smelting capacity of 45 million tonnes, according to consultancy CRU. New capacity has still come on line in China this year, even as illegal, unlicensed capacity has been shut down.
A Reuters survey of six consultancies and brokerages last week, before the Hongqiao news, showed that up to 1 million tonnes of the light metal, used in making cars and white goods, could be cut during the 4-month heating season in northern China, which begins in mid-November, in the country’s first winter restrictions on aluminum.
That works out at as much as 3 million tonnes on an annualized basis and is on top of the 3-4 million tonnes of annual capacity estimated to have closed permanently this year as part of a crackdown on facilities built without necessary permits.
The prospect of supply cuts in China has roiled markets, particularly in the eastern province of Shandong, home to several smelters including Hongqiao, which will shoulder 80% of the winter cuts, according to Wood Mackenzie analyst Ami Shivkar.
Chinese aluminum prices hit 6-year highs above 17,000 yuan (USD 2,581.74) per ton in August, and are on track for their best annual performance in eight years, as investors have bet that government policy will help trim a global glut that has dampened prices for years.
The Chinese government has told 28 northern cities, including Binzhou and six others in Shandong, to take stringent steps to curb smog this winter. Among these is a requirement for smelters to cut primary aluminum production by at least 30%.
Source : Reuters