China’s Chalco to close 380,000 tonnes of aluminium capacity

PUBLISHED : Thursday, 06 June, 2013, 8:38am
UPDATED : Thursday, 29 August, 2013, 4:13am

Chalco, China’s top producer of aluminium, joined other companies on Wednesday in cutting capacity to help trim a market surplus after it suffered losses due to weak prices.

The Aluminum Corp of China said in a statement it would temporarily close 380,000 tonnes of annual capacity due to market conditions.

The shutdown represents 9 per cent of its annual output of primary aluminium products of 4.22 million tonnes last year, according to the firm’s annual report on its website.

In March, Chalco posted worse than expected net annual loss of 8.2 billion yuan (HK$10.2 billion), hit by low aluminium prices and rising costs.

Global production of the lightweight metal used in packaging and transport has consistently swamped demand, leading to a build up of inventories and hitting prices.

Chalco’s move came after US producer Alcoa said last month it was closing two potlines with capacity of 105,000 tonnes as part of a review of 460,000 tonnes of operating capacity.

Russia’s RUSAL, the world’s largest producer of aluminium, said last month it could consider deeper capacity cuts after last year promising to slash 300,000 tonnes of capacity.

Chalco’s brief statement said it had decided on a “flexible” production strategy, “which involves a temporary shutdown of production capacity of approximately 380,000 tonnes of aluminium”, which would take effect immediately.

Analyst Leon Westgate at Standard Bank in London said: “The key remains how temporary the cuts may be, and to what extent new production capacity in China steps in to fill any gap.”

The global market surplus is expected to be 782,250 tonnes this year, and will widen further to 896,000 tonnes next year, according to analysts polled by Reuters in April.

The surplus has weighed on prices, sending benchmark three-month aluminium on the London Metal Exchange, the world’s largest marketplace for industrial metals, down 30 per cent since touching a high of US$2,803 per tonne in May 2011.

In recent weeks, however, prices have rebounded, hitting the highest levels in over 2½ months on Wednesday at US$1,981 a tonne.

Westgate said recent price strength has been driven by Commodity Trading Advisors (CTAs), which often use automated computer programmes mostly based on technical signals.

“Given the systematic buying activity it is difficult to ascribe too much of aluminium’s recent strength to the cutback announcements, with technical factors in charge for the time being,” he said.