China¡¯s aluminium output at 15 month high, experts fear pressure on price

According to a Reuter’s report, China’s aluminium production surged in September after a drop in July/August. This is the highest stock reported in last fifteen months as the producers restarted new and idled capacities after seeing a rise in LME and SME prices.  Experts fear that this might again disrupt the stability in prices.

China accounts for more than half of world aluminium output and it produced 2.75 million metric tons of aluminium in September which is 1.2 per cent higher than a year ago and a third monthly increase. It was confirmed by the statistics bureau on Wednesday.

According to International Aluminium Institute data, it would also be the biggest volume since June 2015. A number of smelters closed shutters at the end of 2015 as they were running unprofitable. They have returned to production to cash in on the price rally. As a result new low-cost capacity is also being brought online.

The price of aluminium rose 15 per cent on the Shanghai Futures Exchange through the first nine months.  Banks including Citigroup Inc. and Deutsche Bank AG have also warned of a retreat as aluminium output starts gaining.

“The smelters are coming back in a rush now, so that’s a concern,” said Paul Adkins, managing director of aluminium consultancy AZ China Ltd. “For the rest of this year, two million tons of annual capacity is guaranteed to come in and guaranteed not to exit.” That’s “going to put a lot of pressure on prices when we get to November or December onwards,” he said.

As a result of quickly growing demand in China, production of basic metals like aluminium and steel has increased this year.  The government is also on a credit splurge to prevent economic slowdown, and survive the markets from multi-year lows. However, the YTD  aluminium output  for China in 2016 remains lower than a year earlier, down 1.4 per cent to 23.44 million tons.

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