China's Henan Seen Unlikely to Cut Aluminium Output Further

HONG KONG, Sept 16 (Reuters) - Smelters in China's top aluminium producing province, Henan, are unlikely to cut production further as prices have risen more than 4 percent since late June, a local industry executive said on Thursday.

Smelters in Henan have idled around 700,000 tonnes of primary aluminium smelting capacity since June, more than 15 percent of the total annual capacity of 4.6 million tonnes, thanks to prevailing low prices at the time in China, the world's top aluminium-producing nation.

The temporary closures in Henan, coupled with Beijing's plan to phase out outdated smelting capacity nationwide, pushed down China's month-on-month aluminium production in the past three months after a record in May.

Beijing aims to phase out a total of 339,000 tonnes of outdated aluminium capacity this year, including more than 100,000 tonnes in Henan, and is encouraging local governments to restrict electricity supplies to power-hungry smelters as part of its efforts to cut energy intensity 20 percent from the 2005 level by the end of this year.

"We have not seen any sign of a further production cut," Liu Libin, vice-chairman of the Henan Nonferrous Metals Industry Association, told Reuters.

He added smelters in Henan should be making marginal profits from their cash production costs, given Chinese aluminium prices had risen, and the Henan government did not restrict power supplies to local aluminium smelters.

Spot aluminium AL-A00-CCNMM in Shanghai traded around 15,230 yuan ($2,263) per tonne on Thursday, up from 14,630 yuan in late June but still down 12 percent from this year's high of 17,380 yuan seen in early January.

The 700,000-tonne idle capacity was unlikely to reopen before the end of this year unless the price rose near 17,000 yuan per tonne and stayed there for some time, Liu said, adding that local smelters' average overall production cost was estimated around 16,000 yuan per tonne.

The idle capacity excluded the 100,000 tonnes ordered by Beijing to be phased out this year.

Liu said the association kept its forecast for the idle capacity to cut Henan's aluminium production by about 350,000 tonnes this year, to about 3.6 million tonnes, from an earlier estimate of more than 4 million.

But this year's production would still rise from the figure last year of around 3.2 million, thanks to expanded capacity.

China, holding 21.5 million tonnes of annual aluminium capacity, may produce 17 million tonnes of the metal this year, the country's top producer Chalco (2600.HK: Quote) (601600.SS: Quote) has predicted.

Official data showed the output was at 13 million tonnes last year. ($1=6.73 yuan)