Last year, Chinese aluminum prices on the Shanghai Futures Exchange declined in the first quarter as some plants were idled.
But increased subsidies from local governments concerned by the loss of employment and taxes resulted in capacity returning in the second half, helping to end a rally in prices.
The most active aluminum contract on the SHFE dropped about 8.5% in the first three months of last year, before rebounding almost 15% by the beginning of September.
It then fell sharply, ending the year at 13,140 yuan ($2,106) a tonne, some 13.4 percent below its September peak and 9.2%weaker over the year.
While Chinese aluminum prices were dragged lower in the second half by the general malaise of commodities, this was exacerbated by the re-commissioning of idled smelters.
As of the fourth quarter of last year, only 11 smelters, or 32% of China’s capacity, were profitable, according to an AZ China report on Jan. 26.
The tug-of-war between local authorities in China and Beijing between loss-making smelters and the jobs and taxes the plants provide is causing havoc in China’s aluminum industry, Reuters reports.
If history is a guide, some smelters may be idled, but they can resume output rather quickly should prices improve.
The Ministry of Industry and Information Technology said in a report released Wednesday that closing smelters would be difficult, due to the loss of revenues, layoffs and debts of local governments. The ministry’s solution of encouraging smelters to merge with local power plants to cut electricity costs sounds workable, but even if this idea is pursued with vigor it’s unlikely to change the dynamics much this year, according to Reuters.
With a decline of 1.0% to CNY 12,890 ($2,066) per metric ton on Wednesday, February 11, the cash price of primary Chinese aluminum recorded the biggest decline of the day. The price of Chinese aluminum billet fell to a 30-day low at CNY 12,900 ($2,068) per metric ton after shifting 1.0%. The price of Chinese aluminum bar fell 0.9% to CNY 13,680 ($2,193) per metric ton. Following a quiet couple of days, the price of Chinese aluminum scrap fell 0.8% yesterday to CNY 12,500 ($2,004) per metric ton.
The cash price of primary Indian aluminum declined 0.9% to INR 115.15 ($1.85) per kilogram. The primary aluminum cash price saw a 0.7% decline on the LME to $1,842 per metric ton. The 3-month price of aluminum weakened by 0.5% on the LME, settling at $1,861 per metric ton.