China Hongqiao expects closure of small aluminum producers in China

China Hongqiao Group Limited, a major aluminum producer expects the total production of the company to rise by about 20% in 2014 even if there is a possibility of smaller producers facing closure due to overcapacity.

The chief executive officer of China Hongqiao, Zhang Bo, said smaller firms are not making money due to low domestic prices.

Electricity accounts for about 40% of the total production costs of aluminum in China.

"In the coming three years, at least about 30 percent of capacity (will be forced to leave the market)," Zhang said at a media briefing in Hong Kong on Monday.

Currently China has approximately 30 million tons of aluminium capacity, out of which about 27 million tons is operating, said Zhang.

He said almost half of operational capacity was under losses as a result of low prices.

For almost 4 years, Beijing has made efforts to tackle this problem of aluminum overcapacity but the President Xi Jinping considers it a priority.

Spot aluminium traded below 13,000 yuan ($2,100) per tonne in this month – the lowest since the mid of 2009. It has dropped around 30% since July 2011 when its percentage was recorded high.

About half a million tons of aluminum capacity has closed this year and it is expected that more smelters will shut down in coming months.