Recently due to seasonal demand increasing, the SHFE aluminium price rebounded to a new positive level. But as a result, more and more smelters want to restart idled pots and catch the chance to reverse losses.

Referring to my last blog, restarts in the next two months will be over 1,200kt, nearly offsetting all the idled capacity of 1,445kt this year. The shadows of oversupply clouds are spreading again. Although China pledged that it would cut at least 420,000 tonnes of outdated aluminium production capacity this year as part of a program aimed at closing obsolete, inefficient and polluting industrial facilities, these restarts make that a hollow pledge. China’s total capacity now is 33Mt and operating capacity is 26Mt, not including the construction over 2Mt in 2014. It is obvious that eliminating capacity just have limited effect on the current market.

Conflict of interest.

Because of falling prices and heavy losses, several smelters decided to shut down to reduce the loss in maximum degree. But local governments are trying their best to keep local smelters operating though increased subsides, by reducing power price or cash subsidies, although the NDRC explicitly ordered the implementation of the new electricity charge, and warning that subsidies cannot be to substandard enterprises. The conflict interest between state and local government is the biggest resistance to the reduction of overcapacity.