MELBOURNE: Large Chinese alumina refineries have started slashing output because of rock bottom aluminium prices that have left 80 per cent of the country's alumina makers spending more money than they make, state-backed research house Antaike said on Friday.
"Under the current alumina price, no alumina refinery can earn profits in China at present," it said in a statement.
"The domestic alumina refining industry is facing a severe winter."
Alumina, made from bauxite, is used to produce aluminium, used in packaging such as beer cans and in transportation such as for car and truck bodies. Demand has suffered alongside China's shuddering economic growth.
Next week, China is expected to report that fourth quarter 2015 economic growth was the weakest since the global financial crisis, adding pressure on policymakers to take more steps to ward off a sharper slowdown that could jolt global markets.
Aluminium prices have been pummelled by a global supply glut. China is the world's biggest producer of the metal and provincial governments there have subsidised aluminium makers because they boost economic growth quotas and local employment.
China's aluminium prices fell below 10,000 yuan a tonne in November, the cheapest in more than a decade. Suffering from constricted cash flows, aluminium makers have cut working stocks of alumina, forcing the glut down the supply chain, Antaike said.
With four-fifths of the country's alumina refineries experiencing negative cash flow, they have started slashing capacity, said Antaike.
"Domestic alumina refineries have halted 9.10 million tonnes per year of capacity... around 2.30 million tonnes per year alumina capacity will be closed in the near term," the researchers said.
Most of the output cuts are centred at high-cost facilities in Shandong and Henan provinces, said Antaike.
Domestic aluminium smelters have closed over 4.5 million tonnes per year of capacity since the beginning of 2015, according to the researcher, with December output running 4.1 percent below the year's peak.
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