China's aluminium capacity restarts not a risk for Alcoa in the short term

According to the latest series of data released by the International Aluminum Institute, China’s aluminium production in October 2016 increased 1.6 per cent from the corresponding period previous year. This marks the first consecutive year-over-year rise in China's aluminium production. Earlier, aluminium production in the world's biggest market fell YoY for five consecutive months, reports Market Realist.

The rising aluminium shipments from China have posed as one of the major challenges faced by the global aluminium industry in 2015. Aluminium majors such as Alcoa and Century Aluminum have held China's ballooning aluminium exports responsible for the lower metal prices.

NewsDuring the earnings calls of the second quarter of 2016, Norsk Hydro and Century Aluminum expressed serious concerns about the excess supply of aluminium from China in H2 2016. Concerns were expressed regarding restarts of some idled Chinese capacity as well.

However, the possibility of the idled smelting capacity coming online seems to be less as of now. According to Rusal, there was a net increase of only 0.90 million metric tonnes in aluminium smelting capacity in China during July 2015-August 2016. The producer sees limited additional restarts since aluminium’s production cost rose due to higher raw material prices.

Rise in alumina and coal prices added to cost of production for the Chinese smelters, as most of them rely on imported alumina and coal. There also have been a lot of logistical issues in aluminium transportation. All these factors combined eventually force-delayed the restarts of the idled capacity.

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