China aluminum output may be growing too fast

As with a range of resource and energy supply sectors in China, aluminum production presents something of a conundrum for the country’s power planning and regulatory National Development and Reform Commission (NDRC). In the last week of December 2006, the NDRC said that curbs are necessary to prevent aluminum production capacity from growing too fast amid surging international prices. The commission is watching a market situation where aluminum prices averaged more than $2,700 per ton in the fourth quarter of 2006 compared to a price of $2,100 per ton at the beginning of the year.

In the Chinese domestic market, the aluminum price increase to the equivalent (at a yuan conversion of CNY7.82: $1) of $2,685 to $2,813 per ton from $2,493 at the beginning of 2006. Alumina prices slumped to the equivalent of $306 per ton on the domestic market from $767 in the first half of the year, the NDRC reported. The fall in the feedstock price is encouraging more investment in production capacity as the profit margins increase. It is estimated that China’s alumina output may have topped 15 million tons in 2006, which represents an increase of 805 over 2005. In November, China lowered the import tariff on alumina from 5.5 percent to 3 percent, which has marginally lowered the import cost of the feedstock. The majority of Chinese alumina producers are on a small scale and use dated production techniques and have a production cost more than 50 percent higher than the global average.

On the London Metal Exchange, aluminum hit a record $3,275 per ton in May. Global supply growth is expected to be maintained at a rate of 6.5 percent in 2007 with China driving the margins with a 12 percent growth in production and a 14 percent growth in demand. The global aluminum surplus is expected to be at around 200,000 tons during the year.

At the same time, aluminum output is expected to have risen 17.8 percent in 2006 to 9.2 million tons and will increase a further 14 percent to 10.5 million tons in 2007. A 5 percent levy was put onto aluminum exports in January 2006 in an attempt to conserve domestic resources and this was raised to 15 percent in November.

The World Bureau of Metal Statistics reports that the world market carried a 328,000-ton surplus of aluminum in the period January to October 2006. Demand rose to 28.2 million tons which was an increase of 1.6 million tons on the 2005 figure. Global production was up 5.2 percent for the same period reaching an all time high of 2.91 million tons for the month of August.

Industrial Info Resources is a marketing information service company that has been doing business for more than 23 years. IIR is respected as the leader in providing comprehensive market intelligence pertaining to the industrial processing, heavy manufacturing and energy-related industries throughout the world. Learn more by visiting www.industrialinfo.com.