Oslo, June 25 -- The Chinese aluminum market is facing a 1.26 million mt surplus in 2010 that should lead to production cutbacks in the second half of the year, according to estimates by China Minmetals.
"Personally I don't think the Chinese domestic market could absorb such a big surplus for a second year," Wang Feihong, senior analyst at China Minmetals Non-Ferrous Metals Co, said Wednesday.
"The calculation means that we would see a production cutback in the second half of this year. That's just my personal prediction," he said.
Speaking at CRU's 15th world aluminum conference in Oslo, Wang said he expected that the 1.26 million mt surplus faced by the country's aluminum market would occur despite a strong growth rate in aluminum consumption forecast this year.
The analyst said aluminum demand still looked "healthy" across all sectors in China, and Minmetals forecast an 18% growth in aluminum consumption to 16.34 million mt in 2010.
"In history, there was a strong rebound of aluminum consumption after each financial crisis. There is no exception this time," he said.
Wang pointed to a tightness in the aluminum scrap market that is contributing to primary aluminum consumption growth. He said secondary alloy producers, who usually rely on scrap, now tended to use primary aluminum and the price differential between the primary and scrap metal has been falling since early 2010.
China's primary aluminum output is forecast to grow to just above 18 million mt this year, Wang said, adding: "Definitely, we will see another great leap forward in this year for production.".
Speaking to Platts on the sidelines of the conference, Wang said that the lower aluminum price may also lead to production cutbacks.
Aluminum for three-month delivery on the London Metal Exchange closed at $1,942/mt Wednesday.
"In the Chinese domestic market, the price is even weaker than the LME, which really hurt Chinese smelters," Wang said, adding that if the lower prices are maintained at the same level for a long time, they will "squeeze the profitability of Chinese smelters and then lead to production cutbacks."