To rein in a deepening market glut, the government will continue to tighten the rampant expansion, said Wang Xiaoqi, deputy director of the Industrial Planning Bureau of the State Economic and Trade Commission.

"We have to maintain a prudent attitude on (new) projects for aluminium smelter construction," said Wang at the 2002 China Aluminium Forum. "We cannot (approve) setting up a new smelting project where there is no market demand."

Analysts said China's annual production capacity is expected to increase by 1 million tons to 5.3 million tons by the year's end, versus 2.8 million tons in 2000.

The increase in capacity, while inspired by strong market demand, has now outpaced demand growth, however. China is likely to produce 4.2 million tons of primary aluminium this year, up 23.5 percent from 3.4 million tons in 2001. But full-year domestic demand is estimated at only 3.9 million tons.

The consequence is that China's aluminium exports are set to double this year from the 2001 level to find a market for the additional output, adding to the problem of already-low international prices, analysts have said.

Calling the expansion a "big problem," Wang said some of the investment in building new smelters is "overheated," especially in those areas with high production costs and inconvenient transportation.

"These smelters will be kicked out of the market, and result in losses," he warned.

Meanwhile, the expansion of smelting capacity has also tightened the domestic supply of alumina, the raw material used to produce aluminium, according to Wang.

"It is estimated that China's aluminium smelting capacity will reach 6.5 million tons by 2005, while the alumina capacity may only reach 6.2 million tons at the most. That means that at least 6.5 million tons of alumina has to be imported to accommodate production capacity.

"This will lead to a shortage in the global alumina supply," said Wang.

Addressing an audience of over 500, Wang said the government has already taken measures to curtail the expansion, including constraining the approval of new smelters, tightening financing for new projects, and closing factories that pollute the environment.

Cao Baokui, a senior official with the China Nonferrous Metal Industry Association, said these measures have already had their effect.

Some expansion plans have been put on hold, Cao said.

The two-day forum, sponsored by Beijing Antaike Information Development Co, closed yesterday. Industry giants like US-based Alcoa Inc, and French companies Aluminium Pechiney and BHP Billition Aluminium, attended the forum, indicating foreign companies' strong interest in China's aluminium market.

The nation's aluminium consumption has grown by 16 percent annually in the past 10 years, against a world average of 1.9 percent.

With China's low production costs, along with the restructuring of the aluminium industries in western countries, more and more major international players will set up plants in China, said Cao.

As part of China's commitments pursuant to its World Trade Organization membership, the import tariff on alumina will drop from 18 per cent to 8 percent.

And the price of electricity, a major cost in aluminium production, is also expected to decrease, thanks to the government's reform of the power sector, Cao said.

(China Daily December 7, 2002)