Rusal warns on China aluminium restarts as smelters plan fund to ease closures

Russian aluminium giant Rusal warned against Chinese smelters restarting plants to keep from undermining prices that have retreated from 2016 highs as Chinese producers consider launching a fund to deal with the layoffs from closures.

Global aluminium prices that rebounded to nine-month highs last month have enticed some Chinese smelters that closed in the past year amid overcapacity in the sector to resume production. But, while analysts say the restarts have been slow, producers fear they could weigh on prices again. China is the world's top consumer and maker of aluminium.

Chinese producers should continue to keep their discipline towards production to "ensure gradual improvement in prices and profitability," Rusal's Deputy Chief Executive Oleg Mukhamedshin told an industry conference on Tuesday.

There had been instances in the past when Chinese smelters restarted output as prices bounced to make immediate profits, but it's turned out that is not helpful to prices, said Mukhamedshin.

Aluminium on the London Metal Exchange was trading at $1,566.50 a tonne on Tuesday, down from this year's peak of $1,686 reached on April 29.

China's aluminium producers pledged to shut 4.6 million tonnes per year of capacity, or about 10 percent of smelting, amid plunging prices for the metal. Aluminium prices on the Shanghai Futures Exchange fell for six straight years before staging a pick-up this year.

Chinese producers are looking at establishing a fund to help companies that have shut and to cope with the big swings in futures prices, said Wen Xianjun, Vice Chairman of China Nonferrous Metals Industry Association, at the conference.

"The recent volatility in futures is not favourable for industry players. And we are considering to set up a fund to battle big futures market swings and for smelters that have closed and have to deal with layoffs," said Wen.

The Association will lead the coordination among the smelters who they hope will provide the capital for the fund, said Wen. He also said while restarts and investment in new capacities will be limited, he sees demand growth outpacing supply going forward.

Aluminium consumption in China is set to grow by 7 to 10 percent a year over the next five years and hit 44 million tonnes by 2020, Aluminium Corp of China Ltd (Chalco) President Ao Hong said.

In February, six large Chinese aluminium producers said they were considering forming a joint venture company to handle primary aluminium stockpiling to support prices. The stockpiling plan was put on ice in April, an industry body official said, after prices pushed higher.

($1 = 6.5221 Chinese yuan)