China cuts impact global aluminium output in Oct

Global primary aluminium production fell at an annualised rate of almost 1 million tonnes in October, according to figures from the International Aluminium Institute (IAI).

This is the first tangible evidence to back up the lengthening list of cutbacks announced by aluminium producers in response to the collapse in prices to three-year lows.

However, this is not a one-dimensional dynamic. October's drop resulted solely from a decline in Chinese production. In the rest of the world, falling production in some regions is still being offset by rises elsewhere.

CHINA CUTS

Global production dropped to an average 106,230 tonnes per day in October from 108,870 tonnes in September. In annualised terms, the month-on-month slide was equivalent to about 964,000 tonnes.

Chinese production figures, supplied by the China Nonferrous Metals Industry Association (CNMIA), showed national output falling at an annualised rate of 1.042 million tonnes in October.

October output of 1.106 million tonnes was 2.6 percent lower than output in October 2007. This marks a break in the long-running supersonic production growth registered in China in recent years.

National aluminium champion Chalco announced in October it was initiating a swinging 18-percent cut in capacity, representing 720,000 tonnes of annual output, in response to low prices and domestic market weakness, which has been manifesting itself in a massive inventory build.

Stocks held by the Shanghai Futures Exchange have been oscillating around the 200,000 tonne level since the start of November. However, Reuters has reported a total stock overhang of 1 million tonnes, most of it sitting in non-exchange warehouses.

A sign of desperation in the sector has come in the form of an official request via the CNMIA for the state to top up its strategic reserves of the light metal.

There are several other confirmed cutbacks in China. Click on the following link for the breakdown. Since the Chinese smelter sector is still highly fragmented, there is probably more producer pain out there which hasn't yet made it onto the collective radar screen.

Some offset to closing potlines may come from new smelter starts, which are still taking place, particularly projects that are vertically integrated with power supply.

China, though, is currently the driver of the global supply-side response and it probably will remain so through the end of the year.

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