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China to add 7 mil mt/year aluminum smelting capacity in 2016, but usage depends on power costs

Hong Kong — China is expected to construct 7 million mt/year of new aluminum smelting capacity in 2016, but how much of the new capacity would be brought online will depend on cheap availability of power, refined aluminum prices, demand and stock levels, brokerage Galaxy Futures said in its aluminum industry report issued Monday.

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The new smelters will be mainly based in Shandong Province and the autonomous regions of Guangxi, Xinjiang and Inner Mongolia.

China added over 5 million mt/year new aluminum smelting capacity in 2015, chiefly in Shandong province, North China, and Northwest China, where power costs are relatively lower in comparison to the rest of the country, according to China Nonferrous Metals Industry Association.

However, China also shut a total 4.91 million mt/year aluminum smelting capacity last year on poor refined aluminum prices, supply glut and high stocks, CNIA said last month.



The shut capacity was located in Liaoning, Hubei, Hunan, Gansu, Yunnan, Qinghai provinces, Chongqing City, and the autonomous regions in Xinjiang and Inner Mongolia.

As of end-2015, China's total smelting capacity stood at 40 million mt/year, according to CNIA.

If the new smelting capacity this year cannot be put into operation, then the total capacity kept shut would be 12 million mt/year in 2016, including the 4.91 million mt/year shut last year, the brokerage firm said.

POWER COSTS

Availability of cheap power is a major factor for Chinese aluminum smelters, with those having low power costs surviving and those incurring high costs being driven out of the industry, the brokerage firm said.

It forecast China's aluminum sector to be increasingly populated with smelters having low power costs as they would enjoy competitive edge over the others in the coming years.

Looking ahead, Galaxy Futures said as there was surplus aluminum supply in the global market now from a previous deficit, high stocks at London Metal Exchange warehouses and domestic supply glut in China amid poor demand from the real estate and manufacturing sectors, consumption will be under great pressure this year.

Galaxy forecast Shanghai Futures Exchange's most active aluminum futures contract prices to hover around the low Yuan 9,000-11,500s ($1,440-1,840s)/mt in 2016, noting that prices had already fallen below most smelters' production costs so there was little room for a big fall ahead.

--Joshua Leung, newsdesk@platts.com
--Edited by Haripriya Banerjee, haripriya.banerjee@platts.com