China aluminium stocks seen rising ahead of Lunar holidays

* Gongyi power supply to aluminium fabricators resume

* Fabricators in Nanhai cut output on environmental checks

* China's tightening to cut pre-holiday restocking

By Polly Yam

HONG KONG, Jan 27 (Reuters) - Primary aluminium stocks in China are expected to rise further ahead of Lunar New Year holidays as fabricators slow down operations amid weaker domestic demand, pressuring prices, industry sources said on Wednesday.

Reduced demand has already lifted aluminium stocks in the world's biggest aluminium market, following the country's record production of the metal in the past three months.

More than 1.1 million tonnes of primary aluminium may be currently stored in warehouses, fabricating plants and smelters versus about a million tonnes two months earlier, traders and smelter officials estimated. 

Of the stocks, up to 300,000 tonnes are stored in Nanhai city in Guangdong province.

Total stocks include 307,453 tonnes in Shanghai exchange's warehouses as of last Friday, but exclude state holdings.

Weak demand and the buildup in stocks has hit prices, with Shanghai's nearest contract February , which normally reflects China's spot demand for primary aluminium, dropping about 4 percent over the last 10 days.

Xiao Jing, an analyst at Beijing Capital Futures, expects prices to stay weak until after the Lunar New Year holidays. Lunar New Year falls on Feb. 14 this year.

Tightening policies in China -- the world's top consumer of many industrial metals -- was also likely to lead to reduced investment restocking of aluminium before the holidays, Xiao added.

According to a media report, Chinese regulators have ordered banks to call back some of the loans they extended in January, ratcheting up the pressure on banks to fall in line with official lending targets in an apparent move that Beijing is trying to control credits.

NANHAI, GONGYI

"From next week, fabricators in Nanhai would be closing for for two to three weeks," said a manager at a fabricating plant in Nanhai city, who estimated fabricators in the southern city consumed about 600,000 tonnes of primary aluminium and 2 million tonnes of aluminium scrap annually.

He said local fabricators had already been cutting production in the past few weeks due to ad-hoc checks by Nanhai's environmental authority, forcing fabricators to briefly stop production for upgrading.

Nanhai's fabricators may reduce pre-holiday restocking of aluminium due to uncertain credits, the manager added.

According to a smelter official, stocks in Nanhai alone have risen by about 50,000 tonnes so far this month.

He said, normally, Chinese aluminium smelters would maintain production and shipments during the Lunar New Year, which could add stocks in major consuming areas such as Nanhai and Shanghai.

But fabricators in Gongyi were trying to catch up on lost production, after the resumption of power supply, industry sources said.

The power operator in Henan province's industrial city of Gongyi had stopped providing daytime electricity to aluminium fabricators as of Jan. 11 due to local power shortages, forcing them to halve their production and cut metal consumption.

"Power supply has improved a lot this week. Most fabricators are resuming normal production," a trader at a fabricating plant in Gongyi said, adding that some fabricators in Gongyi were expected to maintain production levels during the holidays.

He said his company had brought forward an upgrading plan due to the power shortages and would restart production by the end of this month.

(Editing by Himani Sarkar)