China's State Council orders aluminum capacity cutbacks

With worldwide in aluminum smelting a tailspin and domestic demand growth evaporating, China's State Council, the country's cabinet, has ordered that nation¡¯s aluminum industry to resolve such problems as over-capacity and outdated facilities. So, by the end of 2010, the government has ordered the aluminum industry to shut down 800,000 tons of existing electrolytic aluminum capacity and has decreed that no new aluminum capacity projects can be initiated until 2012.

Worldwide, aluminum smelting has dropped by 7% in the first quarter from the fourth quarter of last year. And, according to International Aluminium Institute estimates, capacity cutbacks already have begun from the 27.4 million metric tons in place in December 2008.

The Chinese aluminum capacity cutback is part of the government¡¯s encouragement of mergers and restructurings in the base metals industry to improve economies of scale and overall competitiveness, as reported by Purchasing.com. According to the plan, China will shut down 300,000 tons of obsolete copper smelting capacity, along with 600,000 tons of lead and 400,000 tons of zinc. The government said by 2011, producers should be 40% self-sufficient in raw materials in copper production, 56% in aluminum production, and 38% in nickel.

Marketwatch.com says China's nonferrous metal industry has suffered badly from the global economic downturn since demand has remained weak and prices have been falling sharply. The government¡¯s decision to cut aluminum capacity was greeted on the Shanghai Futures Exchange by a drop in aluminum futures prices which were ¡°underpinned by the view that Beijing's plans would eat into massive domestic overcapacity,¡± says analyst Alex Heath at RBC Capital Markets in a note to clients

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