OUTPUT cuts by aluminium companies such as Alcoa, the third-biggest producer, amid tumbling prices will fail to end a world supply glut as their efforts are undone by record levels of Chinese smelting, Citigroup said.
Average daily Chinese production is at record levels, while output in the rest of the world is falling. World shipments rose to an average 122,300 tonnes a day in February, the highest since September, the International Aluminium Institute said. Supply will outpace demand for a sixth consecutive year, Citigroup said.
''Daily production rates in the non-Chinese world have been falling but China is more than making up for that,'' said David Wilson, an analyst at Citigroup in London. ''Chinese production will continue to grow. The actual cuts in production haven't significantly impacted yet in terms of the actual volume.''
Alcoa said in January it was cutting smelting capacity by 12 per cent, including 240,000 tonnes from Portovesme, Italy, and La Coruna and Aviles in Spain in the first half. In November, Rio Tinto said it would close the Lynemouth smelter in Britain due to rising energy costs. A month earlier, the company said it would sell 13 aluminium assets to improve its performance.
Industry output will outpace demand by 444,000 tonnes this year as Chinese capacity expands by about 15 per cent, Citigroup said.
China's producers are ''somewhat cushioned'' from falling prices on the London Metal Exchange because of a value-added tax on aluminium imported to the country, the bank said. China makes up 42 per cent of the world's aluminium supply.
Aluminium for three-month delivery was trading at about $US2186 ($2076) a tonne yesterday, down 17 per cent from a year earlier.
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