LONDON – Top aluminum producer China’s battle against pollution has raised the prospect of output cuts, causing prices to rise to 20-month highs, but the rally might have gone too far as oversupply remains a problem.
The market excitement was sparked by a Chinese government document proposing that about a third of aluminum capacity in the provinces of Shandong, Henan, Hebei and Shanxi should be shut over the winter months.
That would aid Beijing’s war on noxious smog, partly created by firms burning thermal coal to produce electricity, which in China could account for between 25 and 40 percent of the costs of producing aluminum.
“When the government in the past tried to implement measures to control production it wasn’t very successful,” said Edgardo Gelsomino a research director at consultants Wood Mackenzie. “The only time production cuts really happened in China was when the economics of the smelters didn’t work.”
An example of this came in November 2015 when prices crashed to 6-1/2 year lows below $1,440 a ton and Chinese smelters cut about 3.6 million tonnes of capacity, according to analysts.
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