Smelter woes worsen
Sunday, September 28th, 2008
Sichuan Aostar aluminum has reportedly cut one third of its production from this week due to the market slump. It loses RMB2000 per ton of aluminum production at the current market price of RMB15,500. Aostar’s annual aluminum production capacity is 125,000 ton. It will shut down 50,000 ton.
In addition, the smelter has a self-supplied hydro power station. Another reason for the plant reducing production is water supply, which will shrink in the winter season.
If the situation continues to worsen, they may consider to further close the production line to 1/2 capacity. It was expected to resume the closure production capacity in April 2009.
On the other hand, the president of Chalco (Aluminum Corporation of China) said Chalco does not have any plan to reduce electrolytic aluminum production on a large-scale, though the market is still going down. Due to the downturn of aluminum market, 20 key Chinese smelters committed to reduce aluminum production 5-10% in July. But despite the cutbacks, the aluminum price has not turned around.
The Yichuan Electric Power Group smelter in Henan province postponed their start-up which was originally scheduled to start in early July. Also the smelter did not re-start a number of pots which were down for relining. In addition, Shenhuo Aluminum, also in Henan province, has closed 12 200KA and 10 350KA pots, and have delayed the restart of their relined pots. Yunnan Aluminum has not resumed 20 relined pots.
Chuangyuan aluminum in Hunan province has closed a number of pots.
Despite these closures and delays, metal inventories are showing no signs of falling.
On the demand side, most analysts are predicting an improvement in demand following the National Week holidays. Long term there are significant milestones ahead for Chinese domestic demand, including the Shanghai World Expo in 2010 and the Asain Games in Guangzhou the same year. In addition, Beijing has announced the construction of 6 new subway lines covering 360kms of track. This is in comparison to the 149kms of track built for the Olympic Games.
Meanwhile construction sites around the major cities are resuming in earnest. many major construction projects had been delayed due to the Olympics restrictions. these restrictions had a knock-on effect from Beijing, due to the many steel mills that were closed, the bans on heavy transport on any major arterial road that approached Beijing, and the stopping of industries such as cement.