China commissions massive new aluminum capacity

　　While major aluminum producers are cutting back on production to rescue slumping prices at a time of weak demand, China is pushing ahead with a major new development to produce more of the light metal in the country's western regions.

　　Xinjiang Qiya Aluminum & Power Ltd., a subsidiary of a mid-sized privately-held southwestern smelter, on Aug. 11 commissioned one of the world's largest aluminum smelters in Xinjiang-Uighur Autonomous Region, the plant manager said Thursday in a phone interview.

　　The plant's location in energy-rich Xinjiang, a province three times the size of France, complements billions of yuan that Beijing has poured into coal and power projects in the last three years as it seeks to anchor economic development there, in part to quell ethnic restiveness.

　　Electricity accounts for half the cost of aluminum, and the central government has sought for years to migrate the polluting industry out of densely-populated seaboard provinces to the more remote west.

　　The plant's capacity amounts to about 2.5% of the country's total output.

　　Xinjiang Qiya's smelter has an annual output capacity of 450,000 metric tons, making it the largest single potline at least in China by production volume, said the plant manager, who asked to be identified only by his last name, Liao. Aluminum smelters are electrically-linked lines of vats.

　　Its size, and the speed it was built, may raise questions about its efficacy. The plant was built in about 18 months and designed by a company "not known in the China market for designing aluminum smelters of any size," said AZ China analyst Paul Adkins, though he added this wasn't to cast doubts on its reliability.

　　The plant would be particularly energy-intensive, Mr. Adkins said. The company didn't comment on these issues.

　　The central authorities are pushing to reshape the domestic aluminum industry, which is highly fragmented and includes thousands of smelters that have been largely resistant to government-led consolidation.

　　Aluminum heavyweights have also announced plans to locate in the west. Aluminum Corp. of China [ACH], or Chalco, said this month it will spend 2 billion yuan to buy a northwestern power producer to leverage on low-cost electricity.

　　But analysts doubt if the westward shift makes economic sense.

　　"These plants will have to depend on imported bauxite transported westward, and have to export the finished product eastward, so it's still hard to tell if the electricity savings will be worth it," said Umetal consultancy analyst Wang Lixin.

　　The new plant is coming on line at a tough time. Major producers including Alcoa Inc. [AA], United Co. Rusal Plc [0486.HK] and Chalco have announced output cuts this year.

　　"We remain sceptical the reductions so far will be enough to fundamentally change the soft outlook for the rest of the year," ANZ Bank said in a report.

　　China has shown an ambivalence in its willingness to crack down on overproduction. While the government has called for a moratorium on new capacity--the Qiya plant would technically replace obsolete capacity--to lift aluminum prices, local governments have also conceded power subsidies to smelters this year to keep revenue and jobs.