SHARES of Chinese aluminum companies rose yesterday amid reports the government may suspend approval for new smelters as it is determined to curb rising overcapacity.
The Ministry of Industry and Information Technology may soon ban new capacity, the China Securities Journal reported yesterday, citing Vice Minister Su Bo who spoke at an internal conference on Friday.
Aluminum Corp of China Ltd, the industry leader commonly known as Chalco, rose 1.7 percent to 11.99 yuan (US$1.83) on expectations the ban may benefit existing plants.
Yunnan Aluminium jumped 3.52 percent to 14.1 yuan while Jiaozuo Wanfang Aluminum Manufacturing soared 4.49 percent to 22.1 yuan. The Shanghai Composite Index fell 0.24 percent.
"The ban, if implemented, will be a major boost to the aluminum sector as it will help ease oversupply," said analyst Yang Xiahui at Northeast Securities. "Aluminum prices are expected to bounce back and industry profitability may improve."
Yang estimated 3.7 million tons of annual capacity are being built in China. She, however, also said planned capacity - mainly in western areas such as the Xinjiang Uygur Autonomous Region and Gansu Province - may total another 20 million tons, which the ban will cover. The newspaper said 70 billion yuan will be invested in the planned capacity but added that plants already under construction should not be affected by the pending ban.
The China Nonferrous Metals Industry Association said China produced up to 17.8 million tons of aluminum last year out of a capacity of 21 million tons, indicating a capacity utilization rate of 85 percent. But a recent report by the State Council, or the Cabinet, put the rate at only 60 percent, the paper said.
Local governments had shut over 1.6 million tons of capacity in the second half of last year in order to meet energy-saving targets.
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