HONG KONG, June 10 -- Chinese aluminum prices may be capped by record production and weaker demand over the coming two months as new capacity comes online, which could lead to a boost semi-finished product exports, industry sources said on Thursday.
Monthly production in China, the world's top producer and consumer of primary aluminum, is expected to reach fresh record highs in June and July as an estimated 1.5 million tonnes of new annual capacity is slated to come on stream.
"Chinese aluminum prices are unlikely to rise in the coming two months," said Heng Kun, senior analyst at Essence Securities in Shanghai, citing the new capacity.
Data from the national Bureau of Statistics showed that China's aluminum output hit a monthly record of 1.46 million tonnes in April.
China produced 8.2 million tonnes of semi-finished aluminum products such as profiles and plates in the first 4 months of 2011, up 37 percent on the year. Exports rose 38 percent on the year to 880,000 tonnes.
PRICES
The Shanghai front-month aluminum contract rose to 17,155 yuan ($2,649) per tonne on Tuesday, the highest level since January 2010. The price stood at 17,095 yuan on Thursday.
The cash London Metal Exchange aluminum prices was quoted at about $2,651 per tonne at 0744 GMT on Thursday, down from multi-year high of about $2,785 in May 2011.
Analysts said this week's rise in local aluminum prices had been supported by China's power shortages and last week's power price hikes, which could raise production costs and force some smelters to cut output.
TAX REBATE
A smelter source said increased exports of semi-finished products have underpinned metal consumption and the exports would rise further in June and July due to firm LME prices. The exports are also allowed 13 percent tax rebates.
But Chinese smelters were unlikely to export primary aluminum given the metal carries 15 percent export tax and is not subject to any tax rebates.
The smelter source said high semi exports had pushed down aluminum stocks in major retailing bases in Shanghai, Wuxi and Hangzhou and Nanhai to near 600,000 tonnes, from above 600,000 tonnes in May based on the firm's figures.
A trading source estimated the stocks in the same four places now above 330,000 tonnes versus about 750,000 tonnes in April.
An aluminum end-user tapped total aluminum stocks in China, including stocks in the four retailing bases, above 1 million tonnes.
The total stocks, estimated around 2 million tonnes in late February 2011, include aluminum monitored by the Shanghai Futures Exchange, typically estimated by traders and analysts. The Chinese government does not release data on the stocks.
For queries, please contact Michael Jiang at michaeljiang@smm.cn
For more information on how to access our research reports, please email service.en@smm.cn