Aluminium prices not curbing Chinese output

Chinese aluminum producers aren't curbing their output despite the metal's slump to a six-year low, suggesting the price of one of the world's most heavily-traded metals still has far to go before finding a floor.

Metals producers normally usher in supply cutbacks when prices fall as hard as they have done for aluminium this year. But with a host of new cost-efficient smelters now online in China, few there are considering cutbacks.

That is bad news for the broader market as surging Chinese aluminum exports in recent months have been one of the biggest drivers of the metal's price plunge. China accounts for about half of the world's aluminium production.

Three-month aluminum futures are hovering near a six-year low of $US1601.50 per ton reached on Monday this week, down by nearly 13 per cent since the beginning of the year.

More than half of China's aluminium production capacity now has smelting costs below $US1,800 per ton, adding that falling costs are likely to be a consistent feature of the Chinese aluminium sector. Chinese smelters that produce around 1.5 million tons of aluminium a year have closed down this year, but that has been more than offset by the newer ones coming on stream. In all, Chinese aluminum production is up by 32 per cent year to date to 15.2 million tons, observed an industry analyst.

Rising international supplies of aluminum are reducing the premiums that producers can charge for immediate delivery to consumers of the metal, which range from metal fabricators such as Novelis Inc. to canned-drink producers such as Coca-Cola Co. and automobile makers such as Ford Motor Co.

Analysts say production cutbacks are more likely to come from US-based producers. A flood of Chinese aluminum there has put the local industry under pressure, forcing them to look for niche segments such as high-grade aluminum for automobiles and away from other products such as building sheets used in the construction industry.