Just when aluminium prices were improving China decides to increase production

China is the world's largest producer and consumer of commodities. It currently produces nearly 55% of global aluminium. 

Naturally, any rise in aluminium prices on the London Metal Exchange (LME) means that China will try and bring its idle capacity on stream. The only issue with this? Higher capacity from China will suppress prices again. 

China has termed this oversupply as a global issue and a Metal Miner report stated that the US and China failed to reach a consensus in June on how to address excess capacity issue. 

According to an Edelweiss report, in China, with the additional capacity coming on board during second half of 2016, aluminium prices may disrupt the demand-supply equilibrium in the country and, therefore, globally.

In February 2016, the country said it would shut down nearly 2.5 million tonne worth of white metal production. "With progressively higher margins, we anticipate 900 kilo-tonne per annum of curtailed capacity to restart, at times with power subsidies to extent of RMB0.1/kwh ($210/t,12% of current LME Al price) from the government and an additional 2.8 million tonne capacity to come on stream, largely in H2CY16," Edelweiss said. 

This will bring the supply-demand under pressure due to firm LME aluminium prices.

Indian aluminium companies like state-owned Nalco, Vedanta and Hindalco are battling with the cheap imports from China.

According to a Business Standard report, Satish Pai, Managing Director of Hindalco said that the downstream producers are worried about the spate of imports. With the rise in China's finished goods export, the country has now the second largest share in aluminium-rolled products in the Indian market".

The report also mentioned that TK Chand, Chairman of Nalco has said that as China is going to increase aluminium production and revive production at its old potlines, it is a case of major concern for the company.