China tough talk on aluminum would not slow smelter growth

Reuters reported that China is once more ratcheting up pressure on its aluminum industry to limit growth but the measures are likely to fail without support from regional governments hungry for projects to generate jobs and boost economic growth.

The world's top aluminum producer and consumer has ordered a halt to all planned smelter projects and is considering cutting export rebates on some aluminum products as it tries to rein in the burgeoning energy hungry industry.

If enforced, the moves could delay or eliminate some 7 million tonnes of planned smelting capacity, traders and analysts estimate, equivalent to about a third of existing capacity. But previous attempts to curb the industry have met with only limited success.

Mr Jonathan Barratt MD of Commodity Broking Services said that "Social stability means everything to the Chinese authorities. If local governments can argue these projects are needed to maintain order and employment, Beijing will find it hard to kill them off."

Reuters Metal Production Database showed that China had annual capacity of around 20 million tonnes in 2010 around 40% of the world's 50 million tonnes. The market expects Chinese aluminum output to exceed consumption by 1 million tonnes. A concerted, effective crackdown would cut that and if maintained, could turn the country into a net importer with the potential to lift global prices.

But if Beijing takes a softer line, as many in the industry expect, oversupply may continue to hold back domestic prices currently trading 5% above their long term average since 1994 while international prices are 45% above their average over the same period.

The latest statement by a senior industry ministry official signal renewed enforcement of a central government policy of controlling aluminum smelting capacity by denying approval to any new smelters. Previous efforts by Beijing to rein in the sector had started to bite during late 2007 and 2008, but were relaxed during the financial crisis and in some cases replaced by incentives to expand output as China strove to maintain employment and growth.

Mr Barratt said that the concern they have is that as they tighten monetary policy there is a risk of overcapacity, which this looks to address. There is a more serious message buried within these moves that China is far more cautious about the future than the rhetoric suggests.

(Sourced from Reuters)

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