According to reports by domestic media, aluminium producers in the People’s Republic of China may make cuts to excess capacity that are deeper than initially expected.
Sources at Xinjiang Jiarun Resources told Chinese media that its second-phase 150 thousand metric ton smelter will cut capacity per government requirements by Friday. Another source, namely Liu Lingan of Baichuan, told a domestic publication that the 150 thousand metric tons per annum of capacity represented roughly half of Xinjiang Jiarun’s illegal capacity. He went on to say that the current cuts come in addition to a prior reduction of 20 thousand metric tons per annum.
As deadlines in the government’s supply-side reform program for the aluminium industry loom, more and more cuts are being made. The local verification phase begins on Friday, prompting Shandong Weiqiao Group to commence the curtailment of the recommended 250 thousand metric tons per annum of capacity last Tuesday, with completion of these cuts to be accomplished by the drop-dead date. While substantial, the cuts made are still a drop in the bucket – of Weiqiao’s 8.4 million metric tons per annum of aluminium capacity, two million metric tons per annum of it operates in contravention with Chinese law.
According to analysts, the cuts Weiqiao is making are predominately centered in the low-power cell capacity, replacing it with new, more efficient smelting capacity. Though the overall cuts made are not of a significant volume, experts say that the reduction is still significant due to the commitment made by producers to comply with enforcement actions.
China’s current illegal production capacity is estimated to be 6.22 million metric tons per annum, with between two million and three million metric tons per annum on the chopping block for the current year. Such cuts will drop China’s total aluminium capacity to 42 million metric tons per annum.