China Aluminium Smelters Eye Spot Sales As Profit Window Opens

HONG KONG, Aug. 5 -- A window of steady profitability may lead Chinese aluminium smelters to resume spot sales after a gap of two months, but traders said any surge in sales from ample stocks would quickly erode prices.

"We sold some in the futures market last week because the prices rose above our production costs," a sales manager at a large smelter in the north said, adding the smelter had reduced spot selling heavily in the past two months on weak prices.

Spot aluminium prices in China have gained 5 percent since June to about 15,290 yuan ($2,258) per tonne on Wednesday.

Average aluminium production costs in China are 15,000 yuan per tonne, a slim margin that could be quickly eroded if a recent sales trickle of stocks estimated at 2 million tonnes turns into a flood of sales, said Fu Bin, an analyst at Jinrui Futures in Shenzhen.

He was referring to stocks in warehouses, fabricating plants and smelters in China as not all the stocks are available to the market.

Some smelters had shipped more metal to consuming areas such as Shanghai city and Guangdong province in the past week, following a flood that interrupted rail services in July in a sign trade is picking up, Fu said.

"But compared with late June, total aluminium stocks may have risen. Two million tonnes now are not a surprise."

Weak prices in the world's top aluminium producer could also further boost exports of tariff-free semi-finished aluminium products, which already surged 91 precent to over one million tonnes in the first half of the year, said traders.

STOCKS

Warehouses in China's three main consuming areas Shanghai, Wuxi city in Zhejiang province and Nanhai city in Guangdong hold an estimated 900,000 tonnes of aluminium stocks versus around one million tonnes in late June.

The stocks included 492,264 tonnes reported by the Shanghai Futures Exchange as of July 30.

Low prices forced some smelters in China's top aluminium producing province of Henan to trim production from June and plans to cut 500,000 tonnes of outdated annual aluminium capacity by the year end are also in the works, a trader at a large smelter in Henan said, adding the province would have around 5 million tonnes of annual capacity after the closures.

But the cuts have not reduced local supplies given new capacity also started production in June, including a 300,000 tonne-a-year smelter in the northern region of Ningxia, smelter officials said.