Industrial production restriction in Henan may affect 1.5MT of total 4MT annual capacity of producing aluminium plate, strip and foil

Industrial enterprises in Henan, China, are required to suspend or reduce production as some of the cities in the province like Anyang, Xinxiang, Hebi, and Jiaozuo re-launched red alerts for increasing air pollution and issued Level I emergency response on Monday, December 7.

Almost all aluminium processors in Anyang, Xinxiang, Hebi, and Jiaozuo have suspended production. Also, in Gongyi and Luoyang, which are yet to raise orange warnings to red ones, large-scale processors have restricted production, while small and medium-scale processors have suspended output.

This move has already attracted investors’ attention. In overnight trading on December 8, the most-active SHFE 2101 aluminium contract fell by 1.02 per cent in just eight minutes after the bell.

Enterprises in Henan are classified into four categories A, B, C and D, each required to comply with different production restriction policies. In the red alert zone, grade A and B producers need to restrict production, while grade C and D producers should suspend production. In the orange alert zone, grade A and B enterprises can restrict production flexibly, while grade C enterprises are required to cut output by 50 per cent and grade D need to halt production. Currently, most of the aluminium processors in Henan are classified as B, C, and D.

In Jiaozuo, local aluminium processors involved in aluminium smelting, casting and rolling are all required to shut down their production lines, while in Luoyang, Henan Wanji, with an annual capacity of 250,000 tonnes, needs to restrict production at smelting and casting lines by 50 per cent and small and medium-scale producers have cut or fully halted production. The key aluminium producer Longding, however, operated as usual.

In Gongyi, key producers Mingtai Aluminium and Yongtong Aluminium operated normally, while other large-scale producers were asked to reduce production by 20-50 per cent.

The total annual capacity of aluminium plate, strip and foil producers in Henan stands close to 4 million tonnes, of which more than 80 per cent is contributed by capacities in Gongyi, Luoyang, and Jiaozuo. The current production restriction in Henan is expected to affect 1.5 million tonnes, reducing primary aluminium demand by almost 4,000 tonnes a day.

SMM believes the restrictions would primarily affect the demand for aluminium plate, strip and foil, while the overall demand would remain strong.