Aluminum makers face mounting supplies in H2

China's oversupply of aluminum is likely to escalate in the second half of 2013 as more new capacity is set to come onstream, further reducing the need for imports by the world's top consumer and producer of aluminum.

Smelter sources said the stronger than expected consumption experienced in the first half of 2013 would be maintained, but did not expect further growth this year.

Imports have already tumbled 67 percent in the first half from a year earlier, official data showed.

China's mounting supplies would also weigh on domestic prices, said Zhang Chenguang, analyst at information provider SMM.

China has tried unsuccessfully to limit aluminum capacity and last month further tightened regulations for new and existing smelters.

Analysts and smelter sources said the regulations would not cut production this year, but would limit expansion in the longer term.

China has more than 27 million tons of annual capacity currently. Some 10 million tons of capacity was being built, according to a report on the Ministry of Industry and Information Technology  website.

Analysts expect China to add more than 3 million tons of new aluminum smelting capacity this year and the bulk would come from the northwestern Xinjiang Uyghur Autonomous Region.

In Xinjiang at least 1.3 million tons of capacity would start up in the second half, compared with around 1 million tons of new capacity in China in the first half, said Zhang.

An executive at a large smelter said some new power plants in Xinjiang would also be completed in the second half of 2013, prompting smelters to start new aluminum capacity there.

State-backed research firms Antaike and Aladdiny estimated China's aluminum production at about 12 million tons in the first half of 2013.

The estimated figures appear higher than official data, which showed 10.58 million tons in the first half.

Consumption in the first half had risen about 10 percent from a year earlier as demand from the construction, home appliance and transport sectors grew, said the executive at a large smelter, who expected demand to stay firm in the second half.