Chinese Primary Al Smelters Suffered from Low Price and High Cost

Chinese primary aluminium smelters seem suffered from worse profitability. Primary aluminium price at Shanghai Futures Exchange (SHFE) stays lower than Chinese smelters’ breakeven point while Chinese government abolished power charge incentives for domestic aluminium smelters in June. The smelters still keep active operations but, several Japanese traders point out, they may lower operating rate if loss making situations continue.

An analyst of China Minmetals recently attended CRU’s aluminium forum held in Oslo, Norway and explained Chinese government plans to close unprofitable aluminium smelters in the country within this year. The analyst said the government has reviewed incentives for domestic smelters in order to brake expansion of aluminium smelting capacity and integrate smelters into inner West areas of the country where electric power charge is relatively cheap.

Several Japanese traders estimate Chinese aluminium smelting cost at average US$ 2,100 per tonne, the highest level in the world. SHFE’s current aluminium price is averaged at around US$ 1,850. These figures suggest most smelters cannot gain profits at present ingot price level.

Minmetals’ analyst explained Chinese total ingot production increased by 53.6% to 5.47 million tonnes for January-April 2010 compared with the same period of 2009, which hit the record volume. The current production is estimated as high as 1.4 million tonnes per month, even higher than the strong ingot consumption in the country.