China Aluminum Sector Faces Capacity, Cost, Supply Woes -Association

SHANGHAI, May 7 -- China's aluminum industry is still facing a range of problems from overcapacity to high production costs and raw material supply bottlenecks, despite a rapid recovery last year on the back of the government's supportive measures, the China Nonferrous Metals Association said Friday.

"A resources squeeze and rising energy prices are especially bothering Chinese aluminum producers," Wen Xianjun, vice chairman of the industry body told a copper and aluminum conference.

To reduce China's high reliance on overseas supplies of raw materials, aluminum producers can take advantage of massive low-grade bauxite in the country and re-use natural resources, Wen said.

"Speeding up overseas exploration (of bauxite) can be another option for Chinese smelters," he said. "Looking for substitutes for imported raw materials is also something we can look at."

China currently has to import around 50% of the bauxite it needs.

"We don't want to see a repetition of iron ore story in China's aluminum sector," Wen said. Prices of the iron ore required by Chinese steelmakers are almost double last year's benchmark level, due partly to high Chinese demand in the global market.

Increasing electricity prices are also plaguing cost-conscious alumimum producers, given electricity accounts for about 43% in total cost of aluminum production, Wen said. Beijing has granted 15 large aluminum producers permission to directly purchase electricity from power plants, but higher electricity prices may slow the "cooperation" between smelters and power plants and inhibit implementation of the deals, he said.

However, increasing aluminum usage in transportation and households may help to alleviate the country's capacity overhang, he said.