China Cuts Aluminium Output as Markets Slide Continues

With renewed worries about the Chinese economy, here's some news that will add to those concerns.

Around 10% of China's annual aluminium output is being idled, thanks to high costs, sluggish demand and low prices.

The news, contained in a small news story on the Xinhua official news website, said that a group of smelters in Henan province （China's largest, in the centre of the country） have agreed to idle 20% of their capacity, or around 700,000 tonnes.

The news came yesterday as the Chinese stockmarket again fell on fears about the health of the economy and especially the property sector.

The Shanghai market fell 4.3% on Tuesday and yesterday dropped another 1%.

The story said the 13 smelters involved account for a fifth of China's annual 6.8 million tonnes of aluminium output.

It is the first cut in output and capacity by a major Chinese metal processing industry since the crunch in 2008.

Xinhua reported that Liu Libin, vice chairman of the Henan Nonferrous Metals Industry Association, said the smelters had been cutting production since the middle of this month.

"The move would reduce aluminium production in Henan this year, now estimated below 4 million tons," Liu said.

"The province produced more than 1.5 million tons of primary aluminium in the first five months of this year, more than 20 percent of China's production of 6.8 million tons."

China is the world's biggest producer of the metal and news of the cutbacks has surfaced slowly in provincial and then national media.

So far the news hasn't gotten much play, but if it is followed by news of other cuts, then it will be a very definite sign that the pace of growth in the economy has slowed （but not slumped）。

Metal processors, such as Jiangxi Copper and Zhuzhou Smelter have weakened in recent days （falls of around 4% or more each）， while property groups like China Vanke and Poly Real estate have also continued their six month long fall.

Chalco （Aluminium Company of China） also has seen its share price fall in recent weeks, with another 4% lost this week.

All up, China's market is off around 23% this quarter and 27% since the start of the year, the world's third worst performer.