International famous investment bank Goldman Sachs group inc. (Goldman Sachs) on Sunday (March 5) in the research report that China's efforts in winter heating period to reduce the production of aluminum and alumina 30%, this will change the market pattern.

 

Last week, foreign media quoted people familiar with the matter as saying that China had drawn up a consultation draft called the 2017 air pollution prevention and control plan for Beijing, tianjin and hebei and surrounding areas. Under the plan, it will cut 30 per cent of the capacity of electrolytic aluminium consumer companies in hebei, shandong, henan and shanxi provinces.

 

The four provinces have combined operating capacity of more than 11m tonnes, or about 30 per cent of the country's total, according to the person. The cuts to these businesses will be largely halted by the wrong peak of the heating season.

 

Roy Harvey, chief executive of Alcoa Corp in the us, has said Chinese restrictions on aluminium could change the market.

 

"The affected areas account for about 20 per cent of global aluminium and alumina production capacity," Goldman wrote in the research paper. China's production cuts will push the global aluminium market into a supply gap of about 300,000 tonnes a year between 2017 and 2018, which was previously estimated to exceed supply.

 

The bank expects aluminum prices to rise to $1,950, $2,000 and $2,100 a tonne over the next three months, six months and 12 months.

 

But Goldman sachs believes there is limited upside in aluminium prices over the next three months because of the gap between production cuts and a few months. By contrast, I prefer copper. However, in the next six to 12 months, aluminum will be a very significant bullish option compared to copper and zinc.

 

On the upside risks of aluminium prices, the bank listed the expansion of the Chinese government, which could turn short-term measures into a permanent shutdown.

 

As for downside risks, some factors include: China's economic growth may slow as a result of reduced leverage, and the capacity to restore consumption exceeds expectations.

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