Chalco Cuts Production, But Aluminum Capacity Expansion in China Remains

SHANGHAI, Jun. 6 (SMM) – Aluminum Corporation of China (Chalco) issued a statement yesterday that it would temporarily close 380,000 mt of aluminum capacity, effective June 5. Production cuts by aluminum smelters are not uncommon in recent years amid continuously falling aluminum prices.

Aluminum smelters in Henan, Jiangsu, Yunnan and Guangxi began to cut production three months ago, followed by smelters in Hubei, Sichuan and Shaanxi. As of the end of April, over 900,000 mt/yr in aluminum capacity has been cut across China due to falling aluminum prices. 

Despite production cuts, new capacity is being commissioned, causing aluminum output to grow steadily. Data from China Nonferrous Metals Industry Association show that China’s aluminum output hit 7.01 million mt during January-April, up 15.10% YoY. Aluminum capacity in operations in April was up 360,000 mt/yr from March.

SMM data indicate that aluminum capacity in China is growing rapidly and has now exceeded 25 million mt/yr.

Rising aluminum prices in recent days are attributable to pickup in consumption and decline in inventories. As of May 30, aluminum inventories in Shanghai, Hangzhou, Wuxi and Nanhai had fallen to 1.08 million mt. Primary aluminum consumption began to turn around with fast growth of newly-added transmission lines. Aluminum industry, however, is still in the red as aluminum prices are well below cost levels of aluminum producers in central and east China. 

Severe aluminum overcapacity in China is hampering the healthy development of the industry. Production cuts alone will not fundamentally solve the problem. The key should be slowing the pace of capacity expansion.