SHANGHAI, Mar. 12 (SMM) – Aluminum prices have recently staged a mild rebound, buoyed by news that the State Reserve Bureau (SRB) will buy aluminum ingot and production cuts at smelters. SMM’s survey found that production cuts have been reported at some aluminum smelters in Henan, Jiangsu, Yunnan and Guangxi since the beginning of this year, totaling 451,000 mt/yr. Another two smelters in Hubei are also planning to reduce production by 110,000 mt. Guangxi Yinhai Aluminum told SMM that aluminum prices have dropped below cost levels. Further shutdown could be on the way if local governments provide no subsidies.
In April 2012, over 400,000 mt/yr in aluminum capacity was closed in Henan as the hike in industrial electricity prices pushed up costs for smelters. Spot aluminum prices were RMB 16,000/mt then, with average production loss reported at RMB 500/mt. Aluminum prices, however, kept falling even after production was cut.
Spot aluminum prices are now struggling below RMB 15,000/mt. According to SMM’s quotations, the low-end price for A00 aluminum ingot has slipped to RMB 14,350/mt, causing production loss at smelters to grow to over RMB 1,000/mt.
Many producers intend to shut down more capacity in the future. SMM data indicates that if production cut plan becomes effective, additional 525,000 mt/yr will be cut.
SMM believes these production cuts can do little to lift aluminum prices given that aluminum capacity across the nation has now surpassed 20 million mt/yr.
Aluminum stocks in trading markets in Shanghai, Wuxi, Hangzhou and Nanhai hit 1.23 million mt on March 7, but downstream consumption has shown no signs of recovery.