Chinese energy saving plans positive for aluminium short term

In its latest analysis of Chinese metals trends, Macquarie Research's Shanghai office reckons that Beijing's short sharp energy saving plans designed to ensure the achievement of its planned cuts per unit of GDP in the current 5 year plan is achieved will have a positive impact on aluminium prices in particular in the short term.

What the energy cuts mean is that not only will they impact on current production from the ultra power hungry sector but also lead to postponement of the ramp up of newly installed capacity until next year. This is seen as positive for aluminium prices in the Q4 of the current year.

But the analysts warned that this is only a postponement of increased capacity and with Beijing's pressure on high energy users likely to ease off once the current 5 year period ends, all these capacity increases, plus some already scheduled for 2011 will come back to the market next year. This could then see an over supply situation developing with a negative impact on prices in the medium term.

Overall Macquarie sees the current slowdown as a result of smelters meeting their cuts could take as much as 300,000 tonnes to 400,000 tonnes off the market in Q4 alone. However the analysts suggest that, as a consequence, a production ramp up in the H1 of 2011 could see increased capacity equivalent to over 1.2 million tonnes a year coming in. Given the positive impact on prices in Q4 because of the cutbacks, it is probable this deferred capacity will be brought into production very quickly to take advantage of the higher prevailing prices.

(Sourced from www.mineweb.com)

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