Chinese tremor won't lift aluminium prices

DISRUPTIONS to operations at aluminium smelters in Sichuan after the earthquake are unlikely to support domestic prices because of new capacity and weak demand in China, industry sources say.

China's over-capacity in the energy-intensive aluminium sector may worsen in the second half of the year when about 3 million tonnes of new aluminium smelting capacity starts production, they said.

That could drive up exports from China, the world's top producer of the metal.

About 300,000 tonnes of primary aluminium ingots, nearly a third of the country's monthly production, may be stored in warehouses in eastern and southern China, home of thousands of fabricating plants.

"It would not make any difference, even if all aluminium capacity in Sichuan stopped production. Domestic demand is weak," a trade manager at a large aluminium smelter said.

The quake rocked Sichuan on May 12, killing more than 67,000 people. Sichuan produced about 520,000 tonnes of aluminium last year, 4.2 per cent of China's total.

The trade manager said Beijing's credit tightness had reduced aluminium buyers' cash to buy the metal, used in the construction, packaging and car sectors.

"The Government's controls over the property market has also reduced aluminium demand," the manager said.

Benchmark three-month aluminium on the London Metal Exchange has risen 25 per cent to $US3000 a tonne on Tuesday, supported by increased energy costs.

But the third-contract month of aluminium on the Shanghai Futures Exchange, currently August, has risen 5 per cent to 19,095 yuan a tonne on Tuesday.

Outages are reducing demand from fabricators in southern Guangdong province, which buys electricity from other provinces.

Factories in Nanhai city have received outages three days a week since March and the supply is expected to fall further in July and August when civil consumption rises, a manager at a fabricating plant in the city said.

He added the plant was using oil-powered generators to maintain operations during outages, boosting costs.

"In July and August, we may receive outages at least four days, or even five days a week," the manager said.

With Beijing's controls over power fees, power operators are not keen to run full rates amid increased coal prices.

Some 6.82 gigawatts of coal-fired power capacity had been shut down due to coal shortages, the State Electricity Regulatory Commission said on Monday.

But supply of aluminium has remained abundant, even after the quake, which destroyed 20,000 tonnes of capacity and slightly damaged 100,000 tonnes of newly built capacity at A-Ba Aluminium.

The quake also damaged 5 per cent of Guangyuan Qimingxing Aluminium's 110,000 tonnes annual smelting capacity and interrupted supplies of raw materials to other smelters in affected areas.

But state-owned research group Antaike estimated the quake would not have a big impact on the country's total aluminium production this year, given that damaged capacity was small, an analyst at the group said.

China had about 16 million tonnes of aluminium smelting capacity in December.

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