The price of aluminium is closing in on a six-year high in China on speculation that the latest limits on expanding output capacity will help curtail oversupply.
The price for a tonne of the metal on the Shanghai Futures Exchange rose as much as 3.2 per cent on Thursday to Rmb16,650 a tonne, putting the contract on track for the highest close in five years and ten months.
Beijing has pledged to cut capacity in northern China in 2017 to reduce air pollution. On August 16, China Hongqiao, the world’s largest aluminium maker, confirmed it would cut annual capacity of 2.68 million metric tons, about 30 percent of its total, after a related company “misconducted the construction” of five plants.
Analysts at Citi last week said that that with closure of unlicensed producers this year already exceeding market expectations and winter suspensions likely to be strictly enforced ahead of a key leadership meeting in Beijing, “demand growth will outpace capacity growth from 2017E onward, resulting in improving utilization rates and higher aluminum prices.”