While many of China’s aluminium smelters are in the midst of seasonal cuts mandated by local governments, data released late last week suggests that China Hongqiao Group has thus far failed to comply with the state-directed cuts ordered in November.
According to reportage from aluminium market consultancy AZ China late last month, the Binzhou provincial government mandated cuts of between 330 thousand and 550 thousand metric tons per annum at Hongqiao smelters in the region, followed by notification by CRU Group that the cuts compelled by provincial authorities could top 700 thousand metric tons per annum. Sources agreed that the cuts would remain in place until the conclusion of the winter heating season on March 15.
However, despite the “mandatory” nature of the order, a recent Aladdiny report shows that there is no evidence to suggest that cuts had taken place. Driving the point home, AZ China published a list of capacity closure at Chinese smelters on December 4, detailing 1.5 million metric tons per annum of recent capacity closure, noting seasonal closures of 65 thousand metric tons per annum at Chalco Shandong Huayu, 100 thousand metric tons per annum at Henan Zhongfu, and 550 thousand metric tons per annum at Shandong Weiqiao. Conspicuous by its absence was Hongqiao, not even listed among the ranks of “elastic” production cuts alongside Chalco Shangxi Huasheng’s 30 thousand metric tons per annum and Chalco Liancheng’s 210 thousand metric tons per annum.
With December behind us, the prospect of additional cuts in production has become exceedingly small. Nevertheless, air quality in China’s industrial regions continues to worsen. November saw a noticeable drop in the Middle Kingdom’s breathable atmosphere, with good air days in Beijing, Tianjin, and Hebei falling by almost one-fifth on the year, while PM 2.5 levels rose by one-third from 2017 levels.
Environmental concerns aside, inefficient smelting capacity has increasingly seen itself upon the chopping block thanks to sagging domestic demand and lackluster prices. In addition to the winter cuts described above, AZ China noted 250 thousand metric tons per annum in closures recently due to high cost pressure. Such market metrics seem unlikely to change in the near future, making Hongqiao’s failure to cut any of its massive capacity ever more unusual as time goes on.
While Hongqiao has yet to address the situation, experts believe the reticence of the firm to commit to cuts is due to lessons learned in 2009 and 2015, when the aluminium market rebounded suddenly shortly after cuts were declared, making a quick (and expensive) restart in production necessary. Though the market situation is not anticipated to change in the short term, Hongqiao may be twice bitten, thrice shy when it comes to slicing off loss-making capacity.