Aluminum overcapacity deepens

Even as one-fifth of the nation's electrolytic aluminum capacity lies idle, producers are adding new facilities - a combination that will mean a glut of the metal next year and falling prices, industry experts said on Tuesday.

"China is facing severe overcapacity in the electrolytic aluminum sector, with a low utilization rate," said Wen Xianjun, deputy chairman of the China Nonferrous Metal Industry Association.

The capacity utilization rate is about 78 to 80 percent at present, according to the association.

Wen said that it's sometimes necessary to use "administrative measures" to limit new capacity.

But at the moment, only Henan province has plans to cut capacity, while the Xinjiang Uygur autonomous region is rapidly adding capacity, according to Wan Ling, manager of China nonferrous metals at commodity data firm CRU International Ltd.

She said that although China announced plans to slash capacity by 1.9 million metric tons this year, the reality was quite different.

"Because of falling coal prices and electricity subsidies from local governments, the production cost for electrolytic aluminum is declining and capacity is still increasing," she said. "Many plants in Xinjiang and Gansu have been put into operation since September."

Xinjiang has 3 million metric tons of capacity, and producers plan to take the total to 10 million tons.

China's electrolytic aluminum production capacity will reach 32 million metric tons by the end of this year, according to Wen.

He said that if the government can effectively control capacity expansion and eliminate 700,000 tons of current facilities, the problem might ease next year.

However, Wan estimated that China will have 2 million tons of new capacity next year.

"The new capacity far outstrips the reductions," she said.

As China is adding capacity, international mining giants are shutting down plants because of rising costs and weak markets.

In 2013, UC Rusal, the world's largest aluminum producer, shut 720,000 tons of capacity, which reduced its output by 320,000 tons. It is expected to eliminate another 300,000 tons of capacity in 2014.