As reported by Bloomberg, China’s proposal to curtail metal production in winter in order to control air pollution may cause shortages of alumina but will have little impact on aluminium supply, as explained by one the top industry bodies in China.
The proposal will cause production suspension in alumina refineries in three provinces which would curtail about one fifth of China’s total alumina capacity.
{alcircleadd}The halts to aluminium production will be less because of its high demand in a number of end user applications. According to the plan, about one tenth of the country’s total aluminium capacity would be targeted by this halt, across Hebei, Shandong, Henan and Shanxi provinces.
As confirmed by sources, a draft was circulated by the Ministry of Environmental Protection in the beginning of January. The draft is dynamic and open to change depending on industry feedback, according to another source. The target period ranges from November to March, when pollution is at its peak due to coal-fired heating. As explained by the sources, the plan is to be implemented next winter. There is however no confirmation regarding its possible implementation during the current season.
According to Wen Xianjun, deputy chairman of the China Nonferrous Metals Industry Association, the production halt will affect about 1 million metric tons of aluminium capacity in China. For alumina segment, the impact would be more serious and it might create a serious deficit situation for the raw material.
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Overall, if the plan is brought into action, it would lead to a 12% production loss for alumina and a 4% for aluminium, as observed by Citigroup Inc. analysts.
China produced almost 32 million tons of aluminium and about 56 million tons of alumina in 2016, according to the statistics bureau and Antaike Information Development Co. China is expected to boost its output further in 2017.
News of this capacity cut has already pushed aluminium prices in LME to their highest level in 20 months on Tuesday, while on Wednesday the nation’s biggest smelter China Hongqiao Group Ltd. surged as much as 8.4% and Aluminum Corp of China Ltd., or Chalco, rose as much as 5.1%.
On the flipside, if alumina supply remains tight in 2017, even without the production cut plan, it may affect aluminium price. According to Citigroup the proposal would affect China Hongqiao more than Chalco.
As seen by SMM, if the halt comes to practice, it would cost aluminium smelters about US$327 million in the process and it may encourage new capacity to come online to fill the supply gap.
According to the sources, the halt operations targeted account for more than 11 million tons, or about 30% of the nation’s total aluminium production. For alumina, 50% of running capacity in Shandong, Henan and Shanxi provinces would be affected and about 28 million tons, or 40% of the nation’s total production.
No official correspondence has been made from the Ministry of Environmental Protection’s news department or Chalco or China Hongqiao.
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