September 20, 2017 / 12:55 PM / a year ago

Shanghai aluminum near 6-yr high on Henan output cut reports

BEIJING (Reuters) - Shanghai aluminum prices on Wednesday hit their highest in nearly six years on a report that two companies in Henan province have started cutting production almost two months before China’s official winter restrictions kick in.

FILE PHOTO: A worker drives a forklift to transport aluminum bars at a factory in Anshun, Guizhou province, China, July 1, 2013. REUTERS/Stringer

The most-traded aluminum contract on the Shanghai Futures Exchange finished up 3.36 percent, its biggest one-day leap since Aug. 9, at 17,055 yuan ($2,594.86) per tonne for its highest close since October 2011.

Prices are up by some 28 percent so far this year on concerns that closure of illegal capacity and a crackdown on pollution will leave the market short of supply.

On Wednesday, industry website SMM said the city of Jiaozuo’s environmental protection office issued a notice that mentioned steps to curb output by a Zhongzhou Aluminum, an alumina refinery belonging to Aluminum Corp of China (Chinalco) [ALUMI.UL], and another company, Jiaozuo Wanfang Aluminum.

Chinalco, China’s largest state-run aluminum producer, and Jiaozuo Wanfang were to start reducing production by more than 30 percent ahead of time on Tuesday, according to report. The measures will last until March 15, 2018, the report said.

Jiaozuo is one of at least 28 cities in northern China that will be subject to restrictions on industrial output this winter, although the official curtailment period runs from Nov. 15-Mar. 15.

Chinalco did not immediately respond to a request for comment, while the Jiaozuo environmental protection office, part of the Ministry of Environmental Protection, and Jiaozuo Wanfang could not be reached for comment.

A document published on the Henan provincial government’s website on Sept. 1 said Jiaozuo city was taking early action to ensure it met the winter restrictions.

Aluminum and alumina companies would have to cut output by at least 30 percent, it said, in line with a “battle plan” document published by the Ministry of Environmental Protection last month.

SMM earlier reported that Henan would impose province-wide production cuts this winter, rather than limit them to major cities.

Jiaozuo Wanfang has aluminum smelting capacity of 420,000 tonnes per year, while Zhongzhou Aluminum has alumina production capacity of 2.81 million tonnes, according to their websites.

Helen Lau, an analyst at Argonaut Securities, said the market should not overreact to the early cuts.

“Probably I think they are just starting to prepare for the winter production cuts,” she said.

“So in order to get it all shut for the winter ... they have to start earlier. In order to get that (magnitude of) impact on production cuts you have to start now.”

Reporting by Tom Daly; Additional reporting by Melanie Burton; Editing by Joseph Radford and Tom Hogue

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