China restarting idle aluminum capacity as prices rebound
Source: www.chinamining.org Citation: Reuters Date: May.29, 2014
Chinese aluminum smelters are restarting some idled capacity after prices of the metal rebounded from five-year lows hit in March, also taking advantage of lower power costs promised by a province in the southwest, industry sources said.
The restarts could again drag on domestic prices in the world`s top producer and consumer of aluminum, triggering higher exports of both primary aluminum and its products and in turn weighing on the global market.
Severe oversupply of primary aluminum pushed down China`s domestic prices in March to their lowest since 2009, hitting smelters with massive losses and forcing them to close high-cost capacity. Aluminum on the London Metal Exchange had in February also been at its lowest in about 4-1/2 years.
Between late 2013 and end-April about 2 million tonnes of smelting capacity was closed in China, according to estimates by analysts at Xinhu Futures and state-backed research firm Antaike and executives at two smelters. That represented about 9 percent of the 23 million tonnes of annual capacity that was operating in December 2013 based on output data.
"About a quarter of the 2 million tonnes of closed capacity could be restarted in coming months," said an executive at a state-owned smelter. He declined to be named because he was not authorised to talk to media.
Antaike`s analyst Guo Qiuying in Beijing and Xinhu`s analyst Xu Hongping in Shanghai also expected some 500,000 tonnes of idled capacity to be restarted before the end of the year.
The nation`s top producer Aluminum Corp of China Ltd , hit by the tumbling prices, had reported a net loss for the first quarter twice that of a year ago.
But the capacity cut, couple with now firmer prices on the London Metal Exchange, have pushed up China`s aluminum market, with spot metal up about 8 percent from the March trough.
The prices are also expected to rise further as raw material costs climb due to Indonesia, the top bauxite supplier of China, halting exports of unprocessed ores in January.
Bauxite is the ore used for the production of alumina, the main raw material for primary aluminum output, and the shortages out of Indonesia are expected to curtail Chinese alumina production later this year.
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