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China plans 1% cut in aluminum capacity

Keywords: Tags  China aluminum, production cuts, power costs, NDRC, MIIT, CNIA, Wen Xianjun, BHP Billiton Chalco

SHANGHAI — Two months after it vowed to "vigorously" eliminate obsolete facilities, the Chinese government has laid out a plan to eliminate less than 1 percent of the country’s aluminum capacity.

China aims to idle 273,000 tonnes of outdated aluminum capacity this year, the Ministry of Industry and Information Technology (MIIT) said April 11.

The country had 27.65 million tonnes of aluminum capacity at the end of 2012, the ministry noted in a report issued Feb. 16.

The country’s leadership has time and again made claims about the desire to consolidate industry.

Earlier this year, the MIIT, the National Development and Reform Commission (NDRC) and 10 other ministries set out guidelines for the aluminum industry, calling for fewer aluminum business conglomerates with "core competitiveness and international influence" by 2015, and for the top 10 smelters to account for 90 percent of the country’s total production capacity.

Market participants believe the drive to carry out these plans is missing.

Smelters in the northwest of the country have been expanding as energy is cheaper in that region.

The difference in power rates between China’s east and west can be as high as 0.3 yuan (5 cents) per kilowatt-hour, according to Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association (CNIA).

"Captive low-cost power in the western provinces has enabled Chinese capacity to shift down the cost curve," BHP Billiton Plc said earlier this year. "The cost curve will further flatten and the price is expected to remain below the marginal cash cost of production."

In an oversupplied market, falling aluminum prices have made profitability tough. Aluminium Corp. of China Ltd. (Chalco) reported a huge loss last year on lower metal prices and higher costs, and was expected to remain in the red in the first quarter of 2013.

China also aims to shut 665,000 tonnes of copper smelting capacity, 879,000 tonnes of lead smelting capacity and 143,000 tonnes of zinc smelting capacity this year, MIIT said.

A version of this article was first published by AMM sister publication Metal Bulletin.

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