SHANGHAI, Nov. 29 (SMM) -- Guangdong Golden Horse Tourism Group said on November 24th that its subsidiary, Sichuan Aostar Aluminum Company, will suspend operations of 50 electrolytic cells starting from the same day to conduct maintenance and repairs, with the capacity of those facilities accounting for 30% of its total capacity, while the remaining 118 electrolytic cells will maintain normal production. The resumption of the 50 shuttered electrolytic cells will depend on the market and whether or not the timing is beneficial.

According to SMM sources, the closed electrolytic cells were put into use in June 2007, and they have been close to the maintenance period based on their service life. In addition, those cells experienced several shutdowns and restarts given wide fluctuations in profits at aluminum producers in recent years, so they have approached the standards for maintenance. SMM believes aluminum production losses were responsible for large-scale production cuts for unit maintenance at aluminum producers. Local governments in Sichuan province will implement electricity prices for low-water period since the start of December, and electricity prices will exceed RMB 0.60/kwh at that time, and aluminum producers will unlikely make profits in view of current aluminum prices slightly above RMB 16,000/mt. In addition, whether or not aluminum prices will fall further remains unknown currently. In this context, it is good choice for aluminum producers to suspend production for maintenance.

Unclear aluminum price trends not only result in production cuts at some aluminum producers, but also greatly depress idled aluminum producers' willingness to resume production. Local governments strengthened efforts to conserve energy and cut emissions during 2H 2010, and approximately 2 million mt/yr of aluminum capacity in Guangxi, Guizhou, Henan, and other provinces was forced to shut down. According to previous SMM estimates, power restriction policies in China will ease gradually as the 11th Five-Year Plan period is coming to an end, and idled capacity will be resumed gradually from December. However, significant declines in base metals prices in recent two week negatively affected aluminum producers' willingness to resume production. An aluminum producer in Guangxi province plans to restart production in December. However, profits at aluminum producers are limited based on current aluminum prices, and aluminum price trends remain unclear, and once aluminum prices fluctuate widely, aluminum producers will suffer losses in response. In this context, future aluminum price trends will determine the time when will be beneficial for idled aluminum producers to resume operations.

SMM believes aluminum producers will delay the resumption of idled capacity before aluminum prices make strong gains or overall base metals prices move on an upward track, and aluminum ingot supplies will not likely increase until China's New Year holidays.

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