Category Archives: Reuters
Reuters published an article a day or two ago that China’s industrial capacity utilization reached a 3-year low in the first half of 2013 and there is a tremendous amount of total capacity standing idle in China. One of the “bloated sectors” mentioned was aluminium. According to our BDM report, China’s smelters will have over 31Mt of capacity by the end of 2013 while production is expected to be around 24Mt. This 31Mt of capacity is estimated to have a utilization rate of 77% which is only slightly higher than the 74% average capacity utilization rate of industries in China.
Considering that over 63% of China’s smelters are operating at a loss based off of theoretical cash costs, some of these high-cost smelters will have no choice but to close in the next few years unless the aluminium price greatly rebounds. In the meantime, new capacity in Xinjiang, where there are lower power prices, will slowly replace old capacity. Once domestic capacity is restructured to lower cost regions, smelters’ cash costs should return to reasonable levels.
For more information about the China’s capacity and cash costs, email us at enquiries@az-china.com.
We just finished another monthly session with Thomson Reuters. They offer an online forum for base metals, a special service where traders, bankers and analysts can log in to gain instant access to the latest news, trends and opinions.
As a regular guest in their base metals forum, AZ China answers questions about what is happening inside the China aluminium market. In today’s session we covered subsidies, how much farther the metal price was going fall (and as a result the possibility of closures), an update on capacity expansions, invisible inventory, China’s long-term strategy in terms of Indonesia’s export changes, and production trends.
AZ China is delighted to be able to offer this additional service in conjunction with Thomson Reuters. Join the discussion next month via the Base Metals Forum. For more information, email sapna.pajpani@thomsonreuters.com
We were contacted by Reuters to comment on when China will start controlling capacity to alleviate worldwide price pressure. Our view is local level political pressure coupled with a government that wants to remain self-sufficient will keep high-cost plants running. In addition, aluminium prices may be low but they are not low enough to cause widespread shutdowns. As we have mentioned before, the vast majority of smelters in China are running at 16,500 yuan per tonne or below. There are even some smelters operating at 12,000 yuan per tonne and below, and the new capacity coming into the market in 2012 is all expected to be in this quartile.
The entire article can be viewed here.
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