Hongqiao's cuts to aluminum production capacity may be less extensive than expected

　　China’s Ministry of Environmental Protection (MEP) has introduced a number of reforms that are targeted at the aluminum sector, including requiring a 30 percent curtailment in primary aluminum smelting capacity during the winter heating season from November 2017 to March 2018. Additionally, the country’s National Development and Reform Commission (NDRC) plans to curtail production at smelters without operating licenses. The goal of these actions is to reduce smog while decreasing excess aluminum production.

In response to the planned production cuts, which will reduce the ongoing global supply surplus that has suppressed prices, Chinese aluminum prices reached a per-ton price of more than 17,000 yuan, or $2,581.74, in August, which is a six-year high, according to an Oct. 17, 2017, report from Reuters.

However, according to the same report, the cuts will be less severe than originally anticipated, as China Hongqiao Group no longer needs to cut output by 30 percent this winter.

“The prospect of supply cuts in China has roiled markets, particularly in the eastern province of Shandong, home to several smelters including Hongqiao, which will shoulder 80 percent of the winter cuts, according to Wood Mackenzie analyst Ami Shivkar,” Reuters reports.

But the order issued Friday, Oct.13, by the city of Binzhou, home to Hongqiao, is less strict than originally expected, requiring the closure of 900,000 metric tons of annual capacity during the winter, CRU consultant Jackie Wang, who is based out of the company’s Beijing office, tells Reuters.

Binzhou’s plans take into account illegal smelters that the company has closed already, according to the report. This amounted to 2.68 million metric tons of capacity by the end of July.

Reuters reports that CLSA analyst Victor You, based in Hong Kong, had calculated that a 30 percent reduction in Hongqiao’s production would equal nearly 2 million metric tons.

London-based CRU says China has 45 million metric tons of annual aluminum smelting capacity, according to the Reuters report. The country produced more than half of the 59 million metric tons of annual global primary aluminum production in 2016.

Prior to the news regarding Hongqiao, a Reuters survey of six consultancies and brokerages the week of Oct. 8 showed that up to 1 million metric tons of aluminum could be cut during the winter heating season in northern China.

“That works out at as much as 3 million [metric tons] on an annualized basis and is on top of the 3-4 million [metric tons] of annual capacity estimated to have closed permanently this year as part of a crackdown on facilities built without necessary permits,” Reuters reports.