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BEIJING (Commodity Online): Aluminium prices have hitherto maintained its upward trajectory, except for the last month, in spite of rising production and sky high inventories.
Improvements in the industrial and housing sectors and the unprecedented investment interest in commodities markets have contributed generously towards the strength in the metal.
The market, however, is continually facing new challenges and rising Chinese production capacity looks to be a major one at that.
Total Chinese production of aluminium was at 15.6 million tonnes during the year 2010, but the addition to the production capacity is the real jaw dropper. The total production capacity was at 23 million tonnes.
One can judge from the pace at which the country is producing aluminium that China is facing a production capacity glut. The Chinese primary aluminium output hit a monthly record of 1.459 million tonnes during the month of April.
Number of capacity building projects is also under construction that is likely to increase the capacity further. The chief of China Non-ferrous Metals Industry Association was reported saying that the capacity could rise 14 percent towards 25 million tonnes this year.
Since aluminium production is an energy intensive process, the excess capacity is also threatening to make worse the already affected energy sector.
The severe drought in China is squeezing the energy sector persuading the regulators of the country to curb the usage by shutting down inefficient production units. The regulators attention has also fallen on the excess capacity in the Aluminium industry.
Chinese Ministry of Industry and Information Technology (MIIT) plans to suspend operations in over 2000 companies for more than 18 industries due to overcapacity. The ministry along with eight other government organisations plans to take away 700 tonnes of production a year by the way of regulations. Chinese government placed the permissible growth limit of non-ferrous metals at 8 percent as a part of its plan.
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