LAUNCESTON, Australia, Feb 12 (Reuters) – Anybody looking at China’s vast aluminium sector may be struck by a sense of deja vu, as the issues of last year appear set for a repeat performance in 2015.
The sector is still plagued by overcapacity and poor profitability, but perhaps the biggest concern is the apparent lack of any willingness to deal with the issues.
China produced about 27.5 million tonnes of aluminium last year, according to consultants AZ China, a figure above the official 24.4 million tonnes, which AZ China says doesn’t include some privately-owned smelters.
This represents roughly half of global output, but is still some way short of China’s capacity to produce 36 million tonnes per annum. China will add as much as 3.5 million tonnes of new production this year, but not all of this will be fully utilised, AZ China said in a Jan. 9 briefing note.
With some additional capacity at existing plants, some planned closure of older smelters and the new plants, AZ China expects total Chinese aluminium output to reach 29 million tonnes in 2015, a gain of almost 5.5 percent on the 2014 figure.
The risk to this forecast is whether low prices for aluminium, and rising costs of inputs such as alumina, will force smelters to close down.
And if some smelters are forced to close, will the pattern of 2014 repeat?
What happened last year was that as Shanghai aluminium prices declined in the first quarter, some plants were idled.
But increased subsidies from local governments concerned by the loss of employment and taxes resulted in capacity returning in the second half, helping to end a rally in prices.
The most active aluminium contract on the Shanghai Futures Exchange dropped about 8.5 percent in the first three months of last year, before rebounding almost 15 percent by the beginning of September.
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