Output cuts expected to shrink aluminium surplus in China

Closure of 2m tonnes of capacity and rising demand to buoy the market, industry figures say

PUBLISHED : Tuesday, 08 July, 2014, 1:54am
UPDATED : Thursday, 10 July, 2014, 11:38pm

Rising demand and the closure of some two million tonnes of aluminium capacity are likely to shrink an expected surplus of the metal in China this year.

That would help reinvigorate aluminium prices in the world's top consumer and producer of the commodity, underpinning a global benchmark that has already risen about 15 per cent since touching its lowest in more than four years in February.

"The surplus looks better than what we expected at the beginning of the year," said Shanghai-based analyst Wang Chunhui at information provider SMM.

He forecasts a surplus of less than 500,000 tonnes - half the one million tonnes touted by analysts and smelters earlier this year.

Smelters closed about two million tonnes of high-cost capacity between late 2013 and May as prices fell on worries over the surplus and as the economy slowed. Although about 200,000 tonnes to 500,000 tonnes has come back online as domestic prices rose from five-year lows touched in March, market participants said the closures would be enough to severely dent any production surplus - even with more restarts later in the year.

An executive at a state-owned aluminium smelter said that demand and supply would be in balance in 2014.

China's primary aluminium production grew 7.9 per cent from the year before in the first five months of 2014 to 9.59 million tonnes, lower than an 8.2 per cent rise in the same period last year, official data showed.

Wang said output for the year might come in below 28 million tonnes, down from 28.3 million tonnes he predicted earlier.

Robust demand is also likely to sap any production surplus as the economy stabilises.

A senior executive at a large factory that uses primary aluminium to make semi-finished products in Shandong province said the firm's sales of products used in the transport sector had risen 30 per cent to 40 per cent in the first half from a year ago.

"We see aluminium prices between 13,000 yuan and 14,000 yuan in the second half," he said. Spot aluminium traded at about 13,400 yuan (HK$16,800) on Sunday, up nearly 9 per cent from its March lows.