Second directive issued against building of aluminium plants

China's overproduction of electrolysed metal will lead to a global surplus and falling prices

The central government yesterday issued its second directive in 13 months against building new factories to produce electrolysed aluminium but local authorities in China are ignoring it, which will lead to overcapacity, falling prices and wasted investment.

The State Development & Reform Commission (SDRC) issued an order that bans expansion of existing plants or the building of new ones and demands foreign investors strictly follow the guidelines. The order also told banks and financial institutions to co-operate with this policy and ensure that their branches did not lend to such projects and said that bonds and capital raised in the stock market must not be used for them either.

The State Council issued a similar ban on April 26 last year that has been widely ignored.

China's production of electrolysed aluminium has more than doubled from 1.87 million tonnes from 53 factories in 1995 to 4.35 million tonnes from more than 130 plants last year. They have a total capacity of 5.1 million, the largest in the world.

Projects being built would raise that capacity to 5.25 million tonnes by the end of this year and nearly seven million by the end of 2005, when China's demand would be five million to 5.5 million tonnes, the State Economic and Trade Commission (SETC) projected.

There is also a surplus on the world market, with global output last year of 25.2 million tonnes, up from 24.5 million in 2001, against consumption of 25 million.