SHANGHAI, Sept. 19th (CBI China) -- Domestic aluminum prices have dropped RMB 1,500/mt since early September, a drop of 8.9%. According to CBI's estimate,, the average production cost for domestic refined aluminum producers was RMB 17,500/mt, while on September 16th, refined aluminum prices in the Shanghai spot market were RMB 15,845/mt Although alumina prices continue to fall, CBI believes most refined aluminum producers are still running at a loss, with losses for a limited number of producers even exceeding RMB 2,000/mt.
In this context, CBI conducted a survey of aluminum smelters to determine whether new and expansion projects will come online on schedule and whether or not existing production lines are able to maintain normal production. The survey revealed the following insights.
Many aluminum smelters in southwest China are in the process or planning to put into production a total of 515kt/yr of capacity, with new expansion projects accounting for 255kt/yr of total capacity. Although the majority of expansion projects have come online on schedule, the number of units in operation is far less than expected. Meanwhile, output from the new projects is tightly controlled and date for the remaining capacity to be commissioned has been delayed.
In addition, 100kt/yr of capacity in Shanxi province shut down due to power shortages during July is now scheduled to be restarted sometime in September. According to the CBI survey, a small portion of the idle capacity has resumed production, though at low operating rates, still resulting in limited output during September. Start-up dates for the remaining Shanxi capacity have been postponed.
Aluminum smelters previously said they would not cut production if refined aluminum prices were RMB 17,000/mt or higher, and that they were able to absorb losses for 3-6 months. However, the majority of smelters said they were now considering cutting production when losses reached RMB 2,000/mt.
CBI believes all new projects will be negatively affected by soaring electricity power rates, with the exception of a few producers in northwest China with low power costs. In this context, output from new projects will be limited for the remainder of 2008, and CBI believes China's annual output of refined aluminum will fall to 14.5 million mt during 2008.