Chinese smelters halve Xinjiang aluminium capacity expansion plans

　　Nearly half of new planned capacity in Xinjiang cut in 2012 says analyst while smelters' break even price at CNY 16,000 a delay in captive power plants raises smelting costs

　　Analysts said that aluminium smelters in China's Xinjiang province which aims to become a key production hub of the metal will add only about a third to half of the capacity expansion originally planned for 2012 as low metal prices and costly power cripple the industry.

　　The delay in adding as much as 2.6 million tonnes of aluminium capacity this year in China, the world's top producer and user of the industrial metal, could ease pressure on prices as smelters worldwide struggle to cope with dwindling margins.

　　Mr Liang Lijuan deputy manager of metal products at COFCO Futures said that "Out of the 3 million tonnes to 4 million tonnes per year of new aluminium production earmarked for Xinjiang in 2012, we may only see 1.3 million tonnes to 1.4 million tonnes come online."

　　The benchmark aluminium futures contract in Shanghai has lost a whopping 43% from a record high of CNY 27,490 touched on May 15th 2006 while the three month aluminium contract in London was down 44% from its loftiest level of USD 3,380.15, posted on July 11th 2008. While gloomy economics has a part to play in the drop in global aluminium prices over the years, overcapacity in China, estimated at 300,000 tonnes in 2011 has also been blamed.

　　One reason why few new smelters are coming online is low domestic prices, which must stage a convincing rebound to above the break-even level of CNY 16,000. Analysts who estimated that between 1.7 million tonnes and 2.6 million tonnes of the year's new capacity would be pushed back.

　　Mr Zhang Chenguang analyst of Shanghai Metals Market said that "If the cost environment is not supportive or uncertain, it's better not to start production as restarts are very expensive. A typical 400,000 tonne facility will cost around CNY 100 million.

　　Mr Wang Feihong senior analyst of Minmetals Nonferrous Metals said that but the cut in Xinjiang's production plans is only temporary, with the province scheduled to post total aluminium production of up to 12.7 million tonnes by 2015.