Expect rational approach to aluminium output cut: SMM

China aluminium market, and to some extent, regional markets outside China heavily dependent on the country for aluminium imports have been worrying over aluminium output cut planned for the winter heating season this year. Shanghai Metals Market observes that such concerns are somewhat overdone.

In June 2017, Bank of America Merrill Lynch’s (BofAML’s) Global Commodity Research team said that China needs to curtail its aluminium capacity in order to rebalance the global market. “If the country's smelters increased production as planned, the global market would be oversupplied to the tune of almost five-million tonnes a year between 2018 to 2020,” it added.

China realizing the need of the hour ordered aluminium producers to curtail their production capacity across 28 cities during winter months. The country ordered to slash production capacity on aluminium and alumina by more than 30 percent.

The decision got downstream aluminium producers and end user industry players worrying about their supply of raw materials as once closed aluminium capacity cannot be easily restarted since it costs the producers more than 750 yuan per tonne (to restart).

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However, SMM understands that any aluminium capacity cut to be done during winter heating season will reasonably be the one (in part likely) for which the producer will not be having compliance certificates or approval. Legal capacity should continue to operate, a China Non-Ferrous Metals Industry Association (CNIA) source said.

There should be further scope for aluminium smelters to negotiate with the environmental protection authorities to deduct only their illegal capacity already eliminated from the total amount of capacity ordered to cut.

According to the work plan jointly laid out by various State Council departments, aluminium smelters covered by the “2+26” key regions for pollution control namely, Beijing, Tianjin, and 26 smaller cities in the Beijing-Tianjin-Hebei region are required to pare down capacity by more than 30 per cent based on the number of electrolytic cells inside the potlines.