China Studying Ways to Extend Squeeze on Aluminum Capacity

(Bloomberg) -- China, producer of more than half the world’s aluminum, is studying ways to keep battling overcapacity, according to an official at the nation’s top state-owned producer, who says existing approved projects will be more than enough to meet demand.

“If the government loosens control of the industry, capacity will surge immediately and badly affect the market,” Chen Xuesen, deputy director of the strategy development department at Aluminum Corp. of China, told an industry conference in Fuzhou on Thursday.

Aluminum is the top-performing base metal this year, climbing 25 percent, largely because of China’s concerted campaign to shutter idle and unlicensed smelters, and close plants during winter to curb pollution. But analysts including U.S.-based researcher Harbor Intelligence have warned continued expansion of Chinese output from new facilities will swell a global surplus.

China Studying Ways to Extend Squeeze on Aluminum Capacity

Existing approved capacity of 44 million tons will satisfy demand at least until 2020, Chen said. The country’s aluminum demand will be around 42 million tons by then as property curbs slow consumption growth, he said. China has succeeded in the first stage of its battle to cut aluminum capacity, but the outlook is still complicated and fraught with risks, Chinalco’s President Ge Honglin said at the same conference on Wednesday.

Smelters are not just having to contend with a government-ordered crackdown on capacity. They are facing rising costs as winter output cuts push up alumina prices, an environmental clampdown curbs bauxite supply and coal prices increase, according to Wen Xianjun, deputy chairman of the China Nonferrous Metals Industry Association, who also attended the gathering.

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