(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, April 21 Is aluminium the new steel for
The country's steel producers are already being subjected to
a host of measures intended to weed out excess capacity.
A wholesale restructuring of the enormous steel sector is a
key component of the country's declared war on pollution.
It also provides some negotiating leeway for China when it
comes to dealing with the growing international pressure to rein
China's aluminium producers, which like their steel
counterparts now dominate global supply, seem to be next in line
for "supply-side reform".
Threats to close capacity in the region around Beijing over
the winter heating months had already propelled aluminium prices
They have just been given a further boost by news that
Beijing has ordered the suspension of new capacity in the
northwestern province of Xinjiang. Further measures
seem certain to follow.
The country's aluminium output growth is already showing
signs of braking sharply, although, as ever, statistical
confusion may simply be adding to the general confusion as to
what Beijing's real aluminium policy goals are.
XINJIANG AND BEYOND
Beijing's plan to force capacity reductions in the area
around the capital city next winter had already lit a fire
underneath the aluminium price.
Sceptics argue that the size of the likely cuts will be
dwarfed by the continuing roll-out of new capacity, particularly
in the far-flung northwestern province of Xinjiang.
That calculation has now just been thrown into question
after three Xinjiang smelter projects were ordered suspended
Xinjiang has emerged as the new hub of both Chinese and
global aluminium capacity with more than seven million tonnes of
operating production and a seemingly endless supply of new
Work on three of those has been ordered to stop because they
have not been correctly permitted.
The order, posted on the government website of Changji
County in Xinjiang and dated April 14, specifically identifies
smelter projects being built by Xinjiang East Hope Ferrous
Metals Co. Ltd., Xinjiang Qiya Energy Aluminium Electric Co.
Ltd. and Xinjiang Jiarun Resources Co. Ltd.
The amount of capacity affected is thought to be around two
Quite why these three projects have been singled out, and,
unusually in such cases, specifically named, continues to cause
head-scratching both within China and without.
The best bet is to send a warning shot across the bows of
According to consultancy AZ China, another policy document
is doing the rounds calling for all the country's smelters to
submit to audits covering the full spectrum of permitting and
Previous attempts to clean up the sector after years of
unbridled growth have come and gone without any noticeable
impact but this time Beijing seems serious with multiple
government departments involved.
AZ China's preliminary view is that capacity closures will
take place towards the end of the year.
China's current production rate, meanwhile, seems to be
The country produced 2.71 million tonnes of aluminium in
March and 8.19 million tonnes in the first quarter of this year.
Quarterly production was up 14 percent on the same period of
2016 but growth in March itself slumped to just 3.3 percent.
The year-on-year comparisons are distorted by last year's
low and volatile base.
Expressed in annualised terms Chinese run-rates have dropped
by almost 2.2 million tonnes so far this year with March's 31.9
million tonnes the lowest since July of last year.
It's a counter-intuitive outcome. The current high price
might have been expected to encourage faster production rates,
particularly from those companies now facing potential capacity
cuts from the start of the winter heating season in the middle
It is, of course, possible, that the statistics themselves
are wrong. There have been enough problems in the past to
justify a healthy degree of caution, but it's worth noting that
the two sets of official production data, from the National
Bureau of Statistics and the China Nonferrous Metals Industry
Association, are saying the same thing.
THE NEW STEEL?
Statistical uncertainty is compounding the uncertainty over
Chinese aluminium policy.
Although aluminium is now the best performer among the core
base metals traded on the London Metal Exchange, up 15 percent
so far this year at a current $1,945 per tonne, there is still a
deep-seated scepticism that Beijing is serious about closing
After all, recent aluminium history is littered with
restraining edicts from Beijing, none of which has prevented the
runaway growth of its production sector.
Is it going to be any different this time?
Two things suggest it might be.
Environmental crackdown has risen to the top of the domestic
policy agenda and aluminium smelters, as seen in the winter
heating directive, are clearly in the firing line, not least
because they are a major user of coal power.
Secondly, as with steel, "supply-side reform" is being given
extra impetus by the proliferation of trade cases against
Although it is President Trump currently grabbing the
protectionist headlines, it was the outgoing Obama
administration that filed a broad-reaching case against the
Chinese aluminium sector with the World Trade Organization.
China has, unsurprisingly, strongly denied it has subsidised
its aluminium producers, the base of the WTO complaint, and can
be expected to defend itself rigorously.
But it will be easier to do so, if it can claim to be
actively curtailing excess capacity.
This seems to be the policy in steel and, given the
similarities between China's role in global supply in both
markets, it must offer Beijing a tempting template for
Not least because the Trump administration has just raised
the trade stakes further with a new probe into steel imports in
How long before it does the same for aluminium imports?
(Editing by Elaine Hardcastle)