WSJ: Be Wary of China’s Aluminum Production Cuts

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Investors were starting to think that China was cutting back. It trimmed 3.2 million metric tons, or about 12%, of aluminum production since the start of 2013, according to analysts at Wood Mackenzie. That’s buoyed aluminum prices, at least temporarily, and helped send the Hong Kong-listed shares of Russian producer Rusal up 54% this year, the Wall Street Journal reported.

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Yet these cuts may be a head fake, considering China quickly reduced production in late 2008 only to restart it when demand improved the next year. Meanwhile it has ramped up aluminum-making capacity, with roughly 3 million tons of new smelter space in the past year, especially in its northwest Xinjiang province. By the end of 2015, this province alone will be able to smelt more than double all the aluminum that Russia—the world’s No. 2 producer—made last year, according to data from Paul Adkins at Beijing-based consultancy AZ China.

Weakening prices changed direction when the cash price of primary Indian aluminum rose 0.4 percent on Monday, June 30 to INR 113.65 ($1.89) per kilogram. The cash price of primary aluminum weakened by 0.4 percent on the LME, settling at $1,850 per metric ton. On the LME, the aluminum 3-month price fell 0.3 percent to $1,885 per metric ton.

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Chinese aluminum prices were flat for the day. The cash price of Chinese aluminum held steady yesterday, remaining around CNY 13,310 ($2,140) per metric ton. The price of Chinese aluminum scrap saw little movement at CNY 12,250 ($1,969) per metric ton. The price of Chinese aluminum billet remained essentially flat at CNY 13,590 ($2,185) per metric ton. The price of Chinese aluminum bar continues hovering around CNY 14,200 ($2,283) per metric ton for the fifth day in a row.

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