China's top 20 aluminum smelters, the largest in the world, have cut production by more than 350,000 metric tons on an annual basis as part of a July agreement to reduce energy consumption and boost prices, China's Nonferrous Metals Industry Association said.
The companies took production offline between July 10 and Aug. 10 as smelting became increasingly unprofitable because of higher costs, Wen Xianjun, vice chairman of the association, said in an interview. The reduction is equivalent to roughly 2.8 percent of the nation's production last year of 12.6 million tons, according to Bloomberg calculations.
Aluminum Corp. of China Ltd. and 19 of its peers signed an accord in July to reduce production by as much as 10 percent until the end of the year because of power shortages. Aluminum prices have tumbled 20 percent from a July record of $3,380.15 a ton on the London Metal Exchange because a spreading global economic slowdown may crimp demand for industrial commodities.
"The industry will face a tougher situation in coming months," Wen said. Smelters such as Qingtongxia Aluminum Group "are beginning to become unprofitable because of rising costs," Wen said.
Alumina production capacity has also been reduced by 2 million to 3 million tons because of overcapacity and falling prices, Lang Dazhan, deputy head of the association's aluminum division, said in a separate interview today. Alumina is a raw material that is smelted into aluminum.
Prices for aluminum in China, the world's largest producer, have dropped below the output costs of many smelters, which may force more production cuts in winter as smelters have to switch to more expensive coal-fired power from hydro-electricity, JPMorgan Chase & Co. said Sept. 3.
Aluminum Corp. of China's Shanxi venture, Shanxi Huaze Aluminum & Power Co., has closed 80 pots or 30 percent of the company's 280,000 ton capacity and Qingtongxia Aluminum Group hasn't restarted smelters that were halted for maintenance, Lang said.
Calls to Aluminum Corp., also known as Chalco, and Qingtongxia were not immediately answered.
Chalco's chairman Xiao Yaqing last week said prices face "downward" pressure in the second half because of oversupply and slowing demand growth.
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