China Hongqiao to shut down 250,000 tonnes of aluminium capacity

SHANGHAI: Aluminium producer China Hongqiao Group said it will shut down 250,000 tonnes of production capacity starting on Thursday, as Chinese producers look to combat a slump in local prices to record lows.

The output cut, which mirrors similar moves over the past month by the copper, zinc and nickel industries, followed a meeting of 14 major Chinese aluminium smelters in the southwestern city of Kunming in Yunnan province.

"We will not consider resuming production of the (250,000 tonnes) capacity," a China Hongqiao official told Reuters.

China is the world's biggest producer of aluminium, accounting for more than half of the world's 50 million tonnes of capacity. However, Shanghai prices are on course to fall for a sixth straight year, and are down more than 20% in 2015.

It was not clear if further output cuts may be announced.

Traders and analysts said that at least one smelter and local governments were resistant to broader cuts. The smelter was not losing money, while local governments preferred to offer subsidised power because they depend on the sector for economic growth.

The news sent Shanghai aluminium prices higher before closing nearly flat. The most-active February contract on the Shanghai Futures Exchange closed up 0.1% at 10,375 yuan (US$1,612) a tonne, but off a six-week top of 10,600 yuan.

"The market responses to price cuts so far has been muted as the demand slowdown is still the main concern and the market doubts about the effectiveness of production cuts," Argonaut Securities analyst Helen Lau said in a note ahead of the meeting.

Aluminium on the London Metal Exchange was down 0.6% at US$1,481 a tonne, having plunged a quarter since May, and is on track for its steepest annual decline since 2008.

China's state stockpiler was considering buying more than one million tonnes of aluminium from local smelters, Reuters reported in late November, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009.

Producers have urged the government to scoop up excess metal in a bid to shore up prices, which are now languishing below breakeven for most producers.

Some smelters are keen to avoid shutting potlines - a series of connnected electrolytic cells that turn alumina into aluminium - a costly and complicated move, while state aid may be on the table, traders said. - Reuters