Alcoa CEO points to Chinese aluminum overcapacity

Roy Harvey, the CEO of Pittsburgh-based aluminum producer Alcoa, says the issue of Chinese overcapacity in the aluminum sector is not going away, and that he intends to stay vigilant on the issue.

Harvey, in a February interview with the Bloomberg news organization, said of Chinese aluminum producers, “that playing field simply isn’t level” because Chinese government subsidies are “on an order of magnitude larger’’ than those provided by other nations.

Harvey and the Bloomberg article also referred to a report titled “Measuring distortions in international markets: The aluminium value chain,” issued by the Paris-based Organization for Economic Cooperation and Development (OECD) in January.

That 119-page report concluded that “while government support is common along the aluminum value chain, it is especially heavy in China and the [Middle East] Gulf Cooperation Council (GCC) countries.”

Add the report’s authors, “Excess capacity appears [to] be a genuine concern in the aluminum industry, and one that has implications for global competition as production moves where governments have offered the most support.”

Beyond state-owned enterprise structures in China, the report points to “the role of state influence in orienting production and investment decisions, in particular through government management of input prices and the flow of credit to aluminum producers.”

The OECD writes, “The effect of support for smelting has been most pronounced in China, due to both its export restrictions (in particular as Chinese firms account for almost 60 percent of world output in volume terms) and much larger domestic support. The combined effect of these measures has been to make aluminum cheaper in China than it would otherwise have been, conferring a cost advantage to Chinese producers of semis, whose exports have grown very rapidly.”

In the same early February time frame as Harvey’s comments, China-based aluminum producer China Hongqiao Group Limited announced it intends to ramp up production levels at facilities where output had been curtailed because of winter pollution restrictions.

According to a Reuters report, Hongqiao had only curtailed production at one plant in Shandong Province (rather than at several in China as had been projected), and that facility will begin coming back online now that the mandatory idling period has ended.