China aluminium smelters face new reckoning
Reuters reported that some Chinese aluminium producers that shut smelters during a winter crackdown on pollution may not reopen this spring once output curbs are lifted, as planned new capacity by state-run companies threatens to overwhelm demand and cut into profits. China, the world’s biggest producer of aluminium used in aeroplanes, cars and beverage cans ordered smelters in 28 of its smoggiest northern cities to cut output by 30 % from mid November to mid March. That affected an estimated one million tonnes of annual output.
Record stockpiles and weak aluminium prices, which are down almost 10% since mid November and hovering near breakeven levels, have given smelters from Shandong to Shanxi pause as the end of winter approaches. But they also face extra competition from new, mostly state-owned smelters in regions not subject to output curbs.
According to a survey of analysts, some 3 million to 4 million tonnes of new capacity is set to come on line this year, or about 10% of the country’s current output. That’s roughly equivalent to adding the production capacity of Russia’s Rusal, the world’s second-biggest aluminium producer, to a bloated Chinese market whose overcapacity has riled the United States.
That means squeezing out small, private companies.
Mr Jackie Wang an analyst at CRU a commodities consultancy said that China’s state-owned producers“are going to become bigger and bigger and probably more powerful in the industry.”
A limited restart may boost Chinese efforts to eliminate excess capacity via supply-side reform, which will be one of the main themes of the annual meeting of the National People’s Congress, China’s parliament.
But the new capacity, which far exceeds the amount cut over the winter, is also likely to send shivers across the global market and add pressure to international prices.
A source at a medium-sized smelter in Henan province said his company will“not necessarily” switch its units back on. Doing so depends on whether the local government will sanction such a move, the source said, adding that the restarting process is lengthy. It is also expensive, analysts say.
Mr Wen Xianjun, vice president of the China Nonferrous Metals Industry Association, told Reuters that most Chinese smelters lose money when prices are as low as 14,000 yuan (USD 2,206) per tonne and will have to assess whether restarting is worthwhile.
Source : Reuters