China’s aluminum smelters cut production

China’s 20 largest aluminum smelters, which account for 70% of the country’s output, have agreed to cut production by between 5% and 10%, from this month.

The move was announced yesterday by the China Nonferrous Metals Industry Association and is aimed at mitigating power shortages and higher costs.

The news prompted shares in Chinese aluminum producers to rise sharply and aluminum prices hit a record high.

Power accounts for between 30% and 40% of the cost of making aluminum and some smelters have become loss making because of rising power costs and higher prices of raw materials.

According to a report by news agency Reuters, China’s aluminum production stood at 1.16 million tonnes in May, meaning that the proposed action will see output fall by 83,000 tonnes a month.

The cut is expected to significantly change the balance of the aluminum market in China and globally.

China’s power problems stem from its pace of economic growth, which in the past five years has averaged over 10% annually.

Rationing is in place across a number of provinces and earlier this week, the country’s biggest power producer, State Grid Corp. of China, reported that it has sufficient coal for around 11 days of consumption.