China Hongqiao Group cuts aluminium output as prices tumble

Aluminium producer China Hongqiao Group said on Thursday, it will cut annual capacity by 250,000 tonnes immediately, the latest smelter to pledge to curb supplies as the loss making industry combats record low local prices.

The output cut, representing 6 percent of the company's total capacity, mirrors similar moves over the past month by the other base metal industries and followed a meeting of 14 major Chinese aluminium smelters in the southwestern city of Kunming in Yunnan province.

"We will not consider resuming production of the (250,000 tonnes) capacity," a China Hongqiao official told Reuters.

Aluminium futures in Shanghai closed slightly higher on the news, although the reaction was largely muted as the latest cut in the world's top producing country was considered too small to make a dent in a global stockpile glut estimated at 14 million tonnes.

Still, the move reflects the deepening pain across the industry with Shanghai prices down more than 20 percent in 2015 and on course to fall for a sixth straight year.

Wan Ling, an analyst at research consultancy CRU, said there is likely to be "more production cuts at plants with high cost and big losses, especially those using grid power. The reduction will be supportive to prices but difficult to say it is enough to push up prices."

China Hongqiao is not the first major Chinese smelter to reduce output this year. Chalco and SPIC have already made cutbacks. According to CRU data, China has closed 3.65 million tonnes per year of primary aluminium smelting capacity.

Traders and analysts said that at least one smelter and local governments were resistant to broader cuts. The smelter was not losing money, while local governments preferred to offer subsidized power because they depend on the sector for economic growth.

Some smelters are keen to avoid shutting potlines - a series of connected electrolytic cells that turn alumina into aluminium - a costly and complicated move, while state aid may be on the table, traders said.

The news sent Shanghai aluminium prices higher before closing nearly flat. The most-active February contract on the Shanghai Futures Exchange closed up 0.1 percent at 10,375 yuan ($1,612) a tonne, but it reached 10,600 yuan earlier in the day, the highest in six weeks.

Aluminium on the London Metal Exchange was down 0.5 percent at $1,483 a tonne by 1016 GMT, having plunged a quarter since May, and is on track for its steepest annual decline since 2008.

China's state stockpiler was considering buying more than 1 million tonnes of aluminium from local smelters, Reuters reported in late November, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009. ($1 = 6.4374 Chinese yuan)