MELBOURNE: After signs China was curbing aluminium output late last year, the world's biggest producer is gradually increasing output again, raising the risk of fresh tensions with global trading partners from any spike in exports.
The production restarts and new capacity come as local prices and demand rise, and are earlier than some experts expected.
Chinese production and exports of semi-finished products (semis) hit six-month highs in May, after decade-low prices had caused widespread curtailments in December.
China has been accused by competitors of selling metal into oversupplied global markets below market rates.
China denies this and says excess capacity is a global issue, but analysts say tensions could be partly alleviated by selling more finished products such as smartphone cases.
China Hongqiao Group Ltd, the world's top aluminium producer, is on track to expand its production capacity by 1 million tonnes to around 6.2 million tonnes this year, head of investor relations Xiao Xiao said.
"We are not expecting the price to pick up quickly, but at least this year we have seen very strong demand," she said.
ShFE aluminium prices have rebounded by nearly a third to 12,400 yuan from record lows in November.
Xiao pegged Chinese aluminium demand growth at 7%, with more than 10% gains from packaging, and strong orders from consumer electronics and aerospace.
"The majority of the products will be consumed in the domestic market, but the international market is a key target market for Chinese aluminium semis," CRU analyst Wan Ling said.
China Hongqiao does not directly export, but supplies local fabricators that serve domestic and international markets. Its production jumped by 36.8% to 4.4 million tonnes in 2015, while production capacity reached 5.186 million tonnes.
Medium term, CRU expects China's exports of value-added aluminium products to hit more than 8 million tonnes by 2020 from around 6 million this year, partly as firms sell more to countries along the former silk road.
Exporting more finished products may help China steer through global trade tensions.
The US International Trade Commission has launched an investigation into the global aluminium trade after campaigns from producers such as Century Aluminum Co, which is majority-owned by Glencore Plc.
Beijing-based consultancy AZ China sees 3 million tonnes of new Chinese aluminium capacity opening this year, of which one third is already on line, with more to come next year.
"If they can't ship semis because of WTO intervention, before long they will be selling more finished aluminium goods," managing director Paul Adkins said. - Reuters
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