Since June, the smelter in Henan Province has idled about 700,000 tons of primary aluminum smelting capacity, exceeding its annual production capacity of 4.6 million tons. Because the domestic aluminum price was low at the time.
The temporary closure of production capacity in Henan Province, coupled with the government's plan to phase out backward smelter capacity across the country, led to a decrease in China's aluminum production in the past three months. The output reached a new high in May.
The Chinese government is committed to phasing out a total of 339,000 tons of laden aluminum capacity this year, including more than 100,000 tons in Henan Province, and encouraging local governments to limit the electricity supply to smelters that rely heavily on energy as part of a 20% reduction in energy plans this year.
The vice president of Henan Nonferrous Metals Industry Association said that there are no signs of further reduction in production.
He added that in view of the fact that domestic aluminum prices have risen, Henan smelters can make profits from spot production costs, and the Henan provincial government has not restricted the power supply of local aluminum smelters.
Shanghai spot aluminum reported about 15,230 yuan ($2,263) per ton on Thursday, up from 14,630 yuan per ton at the end of June, but still 12% lower than the high of 17,380 yuan touched in early January.
He said that the idle capacity of 700,000 tons is unlikely to restart before the end of this year, unless the price rises to nearly 17,000 yuan per ton and is held at that price for some time. He also said that the average production cost of the local smelter is estimated to be around 16,000 yuan per ton. And the idle capacity does not include 100,000 tons of capacity that the government plans to phase out this year.
He said that the association's maintenance of idle capacity will lead to an expected reduction in aluminum production in Henan this year by around 350,000 tons. The total production is expected to be about 3.6 million tons, which was estimated at more than 4 million tons earlier. But thanks to capacity expansion, this year's output will still be higher than last year's 3.2 million tons. Chinalco previously expected that China currently has an annual capacity of 21.5 million tons of aluminum and can produce 17 million tons of aluminum this year. According to official data, aluminum production last year was 13 million tons.
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