Prices of aluminium products in China have skyrocketed amidst the crackdown on overcapacity; however, traders insist that demand is weak and cuts will not be as expected. China is known as the largest producer of aluminium in the world but it is currently forcing the closure of illegally built plants because they failed to meet environmental targets.

About one-tenth of China’s productions or 3 to 4 million tonnes of smelting capacity can expect closures this year. Last month, Shandong which is China’s top aluminium region has ordered 3.2 million tonnes offline. Because of the expectations on supply shortage, aluminium prices on Shanghai Future Exchange have increased by 16% since August 1. Open interest has also surged by 50% to a record high of more than 910,000 lots.

Meanwhile, traders and analysts have warned that the market has certainly climbed too far and physical consumers are scared. One trader in Shanghai has noticed a weak downstream demand because of the current situation.

Aluminium production in China has hit its second highest record last June when the SHFE stocks are at 4-year highs. A global trader in Asia said the she expected that China stockpiles to grow from 1.2 million tonnes to 2 million tonnes by year’s end. However, there is still weak demand for aluminium although premiums have started to partially recover.

On the other hand, a manager at Chinese futures brokerage believes that inventories are high and consumption is not really good. Bets are booming prices will encourage some of the plants to restart and new capacity that has been closed by regulators will be allowed to operate again after winter.

China Hongqiao Group Ltd, the world’s largest aluminium manufacturer said that it will cut more than 2 million tonnes per year of outdated capacity but the new capacity will keep its total of 6.5 million to 7 million tonnes. Their overall production target will be kept intact.

There are aluminium extrusion manufacturers that can design, engineer and manufacture extrusions based on the specifications and application of the customer. Most of the aluminium extrusion products can be used by the automotive industry as well as high-end electronics companies.

About Author: Christopher Williams