Alu­minum over­ca­pac­ity deep­ens

China Daily (Hong Kong) - - BUSINESS - By DU JUAN du­juan@chi­nadaily.com.cn

Even as one- fifth of the na­tion’s elec­trolytic alu­minum ca­pac­ity lies idle, producers are adding new fa­cil­i­ties — a com­bi­na­tion that will mean a glut of the metal next year and fall­ing prices, in­dus­try ex­perts said on Tues­day.

“China is fac­ing se­vere over­ca­pac­ity in the elec­trolytic alu­minum sec­tor, with a low uti­liza­tion rate,” said Wen Xian­jun, deputy chair­man of the China Nonferrous Metal In­dus­try As­so­ci­a­tion.

The ca­pac­ity uti­liza­tion rate is about 78 to 80 per­cent at present, ac­cord­ing to the as­so­ci­a­tion.

Wen said that it’s some­times nec­es­sary to use “ad­min­is­tra­tive mea­sures” to limit new ca­pac­ity.

But at the mo­ment, only Henan prov­ince has plans to cut ca­pac­ity, while the Xinjiang Uygur au­ton­o­mous re­gion is rapidly adding ca­pac­ity, ac­cord­ing to Wan Ling, man­ager of China nonferrous met­als at com­mod­ity data firm CRU In­ter­na­tional Ltd.

She said that al­though China an­nounced plans to slash ca­pac­ity by 1.9 mil­lion met­ric tons this year, the re­al­ity was quite dif­fer­ent.

“Be­cause of fall­ing coal prices and elec­tric­ity sub­si­dies from lo­cal gov­ern­ments, the pro­duc­tion cost for elec­trolytic alu­minum is de­clin­ing and ca­pac­ity is still in­creas­ing,” she said. “Many plants in Xinjiang and Gansu have been put into op­er­a­tion since Septem­ber.”

Xinjiang has 3 mil­lion met­ric tons of ca­pac­ity, and producers plan to take the to­tal to 10 mil­lion tons.

China’s elec­trolytic alu­minum pro­duc­tion ca­pac­ity will reach 32 mil­lion met­ric tons by the end of this year, ac­cord­ing to Wen.

He said that if the gov­ern­ment can ef­fec­tively con­trol ca­pac­ity ex­pan­sion and elim­i­nate 700,000 tons of cur­rent fa­cil­i­ties, the prob­lem might ease next year.

How­ever, Wan es­ti­mated that China will have 2 mil­lion tons of new ca­pac­ity next year.

“The new ca­pac­ity far out­strips the re­duc­tions,” she said.

As China is adding ca­pac­ity, in­ter­na­tional min­ing gi­ants are shut­ting down plants be­cause of ris­ing costs and weak mar­kets.

In 2013, UC Rusal, the world’s largest alu­minum pro­ducer, shut 720,000 tons of ca­pac­ity, which re­duced its out­put by 320,000 tons. It is ex­pected to elim­i­nate another 300,000 tons of ca­pac­ity in 2014.

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