China supports 25 pct of local aluminium output-AZ

LONDON, July 6 Fri Jul 6, 2012 1:07pm EDT

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LONDON, July 6 (Reuters) - China's provincial governments are propping a quarter of domestic aluminium production through power subsidies despite soft global demand, consultancy AZ China said on Friday.

"These subsidies play a huge part in turning loss-making operations into profitable centres...The number of plants under water shrinks to just a handful," Paul Adkins, managing director of the Beijing-based aluminium consultancy said in a report.

AZ China said five Chinese provinces are now subsidizing power costs for aluminium smelters with more than five million tonnes of China's operating capacity receiving up to RMB0.1/KWH in assistance.

Another two million tonnes of capacity receives seasonal power price cuts, as the wet season provides more water for hydro schemes, especially in China's southwest, it said.

China is the world's biggest consumer of aluminium, but is largely self sufficient. The industry is considered a strategically important regional employer.

Last month, China's top aluminium producing province of Henan rolled out power subsidies to smelters in a bid to revive output, causing prices on the Shanghai Futures Exchange to fall over three percent to the lowest in three years.

Henan province, accounts for about 20 percent of China's annual aluminium production capacity of more than 23 million tonnes. (Reporting by Melanie Burton; editing by Keiron Henderson)

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