HONG KONG, Feb 8 (Reuters) - Chinese aluminum prices are likely to rise in April as demand picks up with fabricators resuming business after last month's week-long Lunar New Year holiday, industry sources and analysts said on Wednesday.
Primary aluminum demand has been weak after the new year break as many aluminum product plants in southern Guangdong province and some eastern coastal areas have not restarted full production because of reduced export orders and lack of workers.
Analysts said demand was also low because aluminum fabricating plants were dipping into massive stocks built before Chinese new year, which fell on Jan. 23 this year.
But analysts said they expected domestic demand and export orders, which had been hit by the global economic crisis, to pick up in the second quarter, pushing up prices.
"We may not see a strong price rise until late April," said Liao Zhenyuan, analyst at Minmetals Futures.
"Consumption is weak currently. It may take one to two months to cut stocks of aluminum in the market and in fabricating plants," she said.
Weak demand has been weighing on prices in the world's top producer and consumer of primary aluminum.
Domestic spot aluminum hit this year's low at about 15,880 yuan ($2,500) on Tuesday and traded at about 15,900 yuan on Wednesday, traders said.
The benchmark third-month aluminum contract on the Shanghai Futures Exchange was up 3 percent so far this year at 16,355 yuan per tonne on Wednesday, lagging a 12 percent rise on the London Metal Exchange .
A manager at a fabricating plant in Nanhai city in Guangdong, home to dozens of aluminum fabricating plants, said many plants that exported most of their aluminum semi-finished and finished products received fewer export orders in the first quarter.
Those plants were running below half their production capacity, he added.
In addition to fewer orders, labor shortages were also limiting plants' production in Nanhai because some migrant workers had not returned to work, he said.
Labor shortages are a problem in China's main export manufacturing bases such as Guangdong, requiring millions of migrant laborers to fill the gaps.
While demand has been weak, supply of primary aluminum has risen because existing smelters maintained nearly normal production during the celebrations and about 1.5 million tonnes of new capacity had come on stream so far this year, said Minmetals Futures' Liao.
She estimated aluminum stocks in warehouses in four main locations in Nanhai, Wuxi, Hangzhou and Shanghai had risen by about 80,000 tonnes during the holiday to above 400,000 tonnes this week.
A trader in Nanhai said nearly 200,000 tonnes of aluminum ingots, the most popular form in Chinese and international markets, were stored in warehouses in the city alone versus about 110,000 tonnes before the holiday.
Aluminum stocks in warehouses monitored by the Shanghai exchange were up nearly 20 percent to 283,503 tonnes as of Feb. 3 from Jan. 20.
"Stocks should fall after March, depending on fabricators' orders. Prices could rise in April," the plant manager said. ($1 = 6.3049 Chinese yuan)