Chinese aluminium smelters to close more capacity on low prices

Loss-making aluminium smelters in China could idle another two to three million tonnes of annual capacity in coming months as metal prices trough at 6 1/2 year-lows. The closures would trim a production surplus in the world's top aluminium producer and consumer, as well as support domestic prices, although any price gains may prompt some firms to revise their plans, they said.

Chinese spot aluminium prices have held around six-year lows since last month, falling to 11,820 yuan ($1,848) a tonne on Monday, the lowest since February 2009. Capacity cuts by a group of large smelters so far this year would extend to about 2.4 million tonnes in coming months, the China Nonferrous Metals Industry Association said in a statement on Monday, after meeting late last week with smelters.

China Merchants Futures put overall closures so far this year at more than 1.8 million tonnes, while a trader at a state-owned smelter estimated nearly 2 million tonnes had been cut.

Most Chinese smelters were currently making losses when adding transportation expenses on the top of production costs, said an executive at a medium-sized smelter, who expected idled capacity to reach about 5 million tonnes this year.

"If the cuts reach about 5 million tonnes, it would have some impact (on prices)," said Xu Hongping, an analyst at China Merchants. Xu had expected cuts to expand to 2.8 million tonnes by the end of this year, cutting actual production by 1 million tonnes to about 31 million tonnes this year. Consumption was expected at around 30 million tonnes.

That is roughly in line with a forecast by state-backed research firm Antaike, which estimates production at 31.9 million tonnes and demand at 30.6 million tonnes.

London Metal Exchange aluminium has hovered around a six-year low this month, trading at $1,528 on Monday.

Russian producer United Company Rusal and U.S.-based Alcoa Inc are considering cuts.

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