Aluminium makers worried by China's plans to raise output

China's aluminium exports is expanding rapidly-from three million tonne in 2010, it is tipped to touch eight mt by 2019

The possibility of China expanding its aluminium production and reviving old and inefficient potlines has piled up worries for the primary aluminium producers who are already battling a flood of cheaper imports from that country. China's oversupply is also likely to have a bearing on LME (London Metal Exchange) aluminium prices.

"China is going to ramp up aluminium production and also revive production at its old potlines. This is a case of concern for us though one of the bright spots for India is that it is a major centre for consumption", said TK Chand, chairman cum managing director, National Aluminium Company (Nalco) and president, Aluminium Association of India (AAI).

Though the US economy has shown signs of revival, the recent developments in Greece and the possible exit of Britain from the European Union has cast shadows on the alumium industry, Chand said.

Aluminium prices on the London Metal Exchange (LME) have nosedived from the level of $1889 a tonne in 2014-15 to $1680 by the end of 2015-16 and has fallen to $1540 per tonne now.

Despite the rated production capacity of four million tonne per annum (mtpa), actual aluminium production in last fiscal was only 2.5 mt. Aluminium makers were forced to idle 1.5 mtpa capacity as surge of imports met the domestic demand.

China's aluminium exports is expanding rapidly-from three million tonne (mt) in 2010, it is tipped to touch eight mt by 2019. Almost half of the global aluminium capacity of 80 mt is produced in China.

Satish Pai, deputy managing director, Hindalco Industries said, "The downstream producers are very worried about the spate of imports. China's exports of finished products is on the rise and the country has now the second largest share in aluminium rolled products in the Indian market."

Imports of aluminium and aluminium products by India have spiked from 0.88 mt in FY11 to 1.67 mt by the end of 2016-17, meaning a CAGR (compounded annual growth rate) of 41%.

"LME aluminium prices have crashed by 41% in the past five years. But, premiums have collapsed by a higher percentage. The share of imports too, have increased from 40% to 51% in the last four years", Pai said.

Abhijit Pati, chief executive officer (aluminium business), Vedanta Ltd said, the Chinese aluminium producers are focusing on scaling down costs and have reduced cost of metal production by $200 a tonne.

On the cost curve, the aluminium smelters in China are gradually proceeding to the edge of the lowest quartile ($1,050-1,200 a tonne) comparable to smelting costs in Middle East. China is also focusing on ramping up downstream value added capacities for export markets with all the top five smelters developing hot metal based downstream industries.