China aluminum firms to cut 800,000 T of capacity in coming months
24 December 2018
China’s aluminum producers are set to cut at least another 800,000 tonnes per year of smelting capacity in coming months, according to an official at the industry body that organized a rare meeting of smelters on Friday.
The official from the China Nonferrous Metals Industry Association (CNIA) said the figure - first mentioned in a note sent by Antaike analysts at the meeting - was the volume by which the 20 firms attending the gathering planned to reduce their capacity. Antaike is the research arm of CNIA.
CNIA called the meeting - held in the Guangxi region of southern China - in response to aluminum prices that are near two-year lows amid softening demand in the world’s biggest market for the metal.
Participants at the meeting included top smelters China Hongqiao Group, Aluminum Corp of China Ltd, or Chalco, Xinfa Group, Hangzhou Jinjiang Group and East Hope, Antaike said in a note posted on the social media platform Wechat.
Antaike said smelters have so far closed more than 3.2 million tonnes of capacity in 2018, about 80 percent of that in the second-half of the year amid the price slump.
The latest round of cuts brings the amount shuttered to about 9 percent of China’s total aluminum production capacity, brokerage Marex Spectron said in its own note later on Friday.
Companies at the meeting said operating pressure on smelters was “reaching the extreme limit” and was even worse than in the fourth quarter of 2015, Antaike said.
Three years ago, with aluminum prices tanking to around 10,000 yuan a tonne, smelters gathered for a similar meeting and decided to cut 500,000 tonnes of capacity by year-end 2015.
Aluminum prices closed up 0.7 percent at 13,750 yuan ($1,993.60) on the Shanghai Futures Exchange on Friday.
London aluminum, which hit a 16 month low on Thursday after the United States withdrew sanctions on Russian producer Rusal, gave up early gains on Friday to trade down 0.2 percent at $1,908.50 a tonne as of 0939 GMT. [MET/L]
Paul Adkins, managing director of aluminum consultancy AZ China, said in a note that the latest cuts were being made to generate replacement permits, which allow smelters to replace aging facilities with more modern plants.
This meant there would be “net zero reduction”, and the market had quickly realized that, he said.
“Market participants were eager to see some sort of leadership from the major producers ... But the meeting couldn’t even deliver a bullish message to the market,” Adkins said.