China lobs a grenade into the aluminum supply chain:

China’s “Air Pollution Control” regulation was formally approved on Feb. 20 and published on Feb. 28. It came into effect on Wednesday.

It may sound pretty innocuous but, make no mistake, it represents a potential redefinition of the global aluminum market.

 

The world’s largest producer of the metal will force aluminum smelters in four provinces surrounding Beijing to cut output by 30 percent over the winter heating season, which runs from the middle of November through the middle of March.

 

The news has lit a fire under the aluminum price. On the London Metal Exchange (LME) benchmark three-month metal has this week hit a near two-year high of $1,957 per tonne.

 

Some 40 percent of China’s production capacity is potentially affected with analysts calculating a 1.3 million tonne hit on output.

 

That may yet prove a conservative estimate, though. The new directive will also impact raw material suppliers such as alumina refineries and carbon anode plants, sending shock waves down the length of the global aluminum supply chain.

 

FACTBOX on China’s new pollution-cutting measures:

NO PRISONERS IN WAR ON POLLUTION

It might seem strange that Beijing’s war on pollution is going to hit so hard aluminum, a metal that has been at the forefront of the “green” materials revolution.

 

But much of the affected capacity in the provinces of Hebei, Henan, Shandong and Shanxi sources its power from coal, which is the primary target of the new regulations.

 

There was understandable skepticism when the government first proposed the idea in January.

 

Everyone knows that you can’t just turn an aluminum smelter on and off with the flick of a switch. It takes time to ramp down and ramp back up production and the financial costs on producers will be heavy.

 

You can read the complete article HERE

 

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