Resources giant Rio Tinto's decision to scrap plans for a $US2 billion ($A1.92 billion) aluminium smelter in Malaysia has been blamed in part on China over-supplying the market.
While Rio blamed the move on problems with agreeing on power supply terms, analysts also cited China's policy of over-producing aluminium to drive down the alumina price and get cheaper input costs.
Cahya Mata Sarawak (CMS), which owns 40 per cent of the Sarawak Aluminium Company (SALCO) smelter development in Sarawak state, announced the termination to the Malaysian stock exchange.
Morningstar Equities Research analyst Mark Taylor said it suited China's centrally controlled economy to control the price as the government was not concerned about the profitability of individual companies.
Aluminium has been a thorn in the side of Rio since its disastrous 2007 $US38.1 billion purchase of Alcan and it wrote down the division by $US8.9 billion ($A8.54 billion) last month.
"If Rio said it was going to go ahead and build that smelter in Sarawak I would have just about thrown my hands up in the air in utter exasperation," he said to AAP.
"It's the last thing they would do in light of the fact they are looking at shutting down and hiving off their Australian and British smelters."
He said there was still decent earnings to be made upstream mining bauxite and refining alumina but not in smelting.
That would occur as alumina pricing changed over the next few years away from being linked to long term aluminium contracts to a short term or spot price system, as had occurred with iron ore.
"Producers have finally woken up and said: enough's enough, we're not going to renew these contracts," Mr Taylor said.
Citigroup said non-Chinese producers were cutting output but Chinese smelters were more than making up for that.
Alcoa has cut its smelting capacity, Rio Tinto will close its Lynemouth smelter in England this month, costing 300 jobs, and is believed to be considering the future of its Tasmanian smelter where 600 people work.
Rio and Cahya Mata "agreed that they would cease to pursue plans to jointly develop an aluminium smelter at Samalaju in Sarawak but remain open to other future possible collaborations".
He said they were "unable to finalise commercial power supply terms with SEB (power supplier Sarawak Energy Bhd) which would meet the parties' current respective financial considerations and economic imperatives".
The smelter was expected to have an initial production capacity of 550,000 tonnes of aluminium a year, with the potential to expand to 1.5 million tonnes.
Rio shares closed up 43 cents at $64.53.
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