* Commercial stocks at 996,000 T, the highest since July 2010
* Demand stable after rising slightly in September
* Output to rise on new capacity, stocks seen up further
By Polly Yam
HONG KONG, Oct 26 Commercial stocks of primary aluminium in China have doubled this year after consumption slowed while production stayed strong in the world's top consumer and producer of the metal, sources at smelters, analysts and traders said on Friday.
Commercial stocks of primary aluminium ingots at warehouses in the four major industrial cities of Hangzhou, Nanhai, Shanghai and Wuxi reached 996,000 tonnes on Thursday, up about 550,000 tonnes from the end of last year, and the highest level since July 2010, said Zhang Chenguang, an analyst at Shanghai-based information provider SMM.
They could rise further, he added.
The stocks included metal at Shanghai Futures Exchange warehouses. Aluminium stockpiles at warehouses monitored by the exchange stood at 434,363 tonnes last week, the highest since January 2011 AL-STX-SGH.
"Total stocks should be between 1.1 million and 1.2 million tonnes in China," a trade manager at a large smelter said of commercial stocks, including inventories at smelters.
"Stocks were built because the growth of local production has been much faster than the consumption rise."
Consumption in China has slowed this year as an economic slowdown at home and overseas hit activity, though demand inched up in September after aluminium profile manufacturers received more orders for their product, used in the housing sector.
"Demand has not changed much from September. We have seen a slight recovery on demand from the property market," said an executive at an aluminium products maker in the southern province of Guangdong.
He said many exporters of semi-finished and finished aluminium products had received fewer orders in the Canton Trade Fair in early October, which could cut their exports by about 30 percent through March 2013, from the same period a year ago.
SMM's Zhang expects China's aluminium consumption to grow 7 to 8 percent this year, from more than 12 percent last year.
China's economy grew an annual 7.4 percent in the third quarter, marking the first miss of the official target since 6.5 percent growth in the first quarter of 2009, and leaving the economy on course for its slowest full year of growth since 1999.
Aluminium production rose 10.6 percent from a year ago to 14.77 million tonnes in the first nine months, official data showed, even though September output fell 4.4 percent from a record the previous month because of weak prices.
But monthly output could rebound soon on new low-cost capacity. About 1.2 million tonnes of annual capacity may come online in the October-December quarter, the bulk of this in northwestern provinces, where power costs are lower than elsewhere, SMM's Zhang estimated.
Production in the southwestern province of Guizhou, the seventh largest aluminium producer in China, may also rise, as the provincial government is helping cut power costs.
Sources at smelters said the Guizhou government was letting local aluminium smelters build direct transmission lines and set prices with nearby power generation plants in a move that could cut smelters' production costs by about 7 percent to 8 percent.
The policy comes after Beijing in January approved direct power supply to large users in Guizhou. (www.gov.cn) (Reporting by Polly Yam; Editing by Clarence Fernandez)