China smelters cutting aluminum output 20%

Shanghai: Aluminum smelters in China's biggest producing region are cutting output by 20 per cent on falling prices and higher costs, potentially spurring imports in the second half, said an industry official.

About 800,000 metric tons of Henan province's 4 million tons of capacity has been suspended, increasing the prospect of higher imports in the second half amid lower prices in London, Wen Xianjun, vice-chairman of the China Nonferrous Metals Industry Association, said in an interview in Shanghai on Wednesday.

China's economy is cooling as Premier Wen Jiabao's extended campaign to curb consumer prices and the property market damp domestic demand and Europe's debt crisis crimps exports.

Norsk Hydro ASA, Europe's third-largest aluminum producer, will close its Kurri Kurri smelter in Australia as industry overcapacity and weakening demand curb prices, it said on Wednesday.  

"Most Chinese smelters are losing money and those in Henan are operating deep in the red, so we're worried that some of them will die," Wen said. His group represents producers and major state-owned trading firms.

China, the world's biggest user and producer, has imported 226,588 tons in the first four months this year, more than double from a year ago. The nation's consumption accounts for about 40 per cent of global use.

Hydro, which competes in Europe with United Co Rusal and Rio Tinto Alcan Inc and has plants from Qatar to Canada, is cutting costs and capacity after aluminum prices slid 29 per cent from a May 2011 peak. The US's Alcoa Inc also said this year it would shut older aluminum plants in North America and Europe, while Rusal is set to curtail smelting capacity next half.  

Henan province, located in central China, produced 3.88 million tons of primary aluminum last year, according to data compiled by Bloomberg, or almost 20 per cent of the nation's 17.56 million tons in 2011, based on data from the National Bureau of Statistics. Aluminum in London traded at $1,983.25 a ton at 9:48am Shanghai time.

The power price in Henan is about 0.6 yuan ($0.09) per kilowatt-hour, driving the average cost of aluminum smelting to 16,800 yuan ($2,638) a ton, Wen said. This compares with about $0.03 to $0.04 in North America, according to CRU International Ltd. The most-active contract on the Shanghai Futures Exchange fell 0.3 per cent to 15,905 yuan a ton.

Five Chinese producers of alumina including Aluminum Corp of China Ltd, or Chalco, have said they will cut output by 10 per cent from this month in response to the changing supply of bauxite, according to a joint statement posted on the website of researcher Beijing Antaike Information Development Co on May 30.

Indonesia banned exports of 21 unprocessed minerals including bauxite, except for companies planning to build local refineries. Those shipments are subject to a 20 per cent tax. Ore from the country accounted for almost 80 per cent China's of bauxite imports last year. Bauxite is used to make alumina.

"Given the bauxite in West Africa, Australia and Fiji, there shouldn't be any big problem," Wen said.

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