Global aluminum prices may rise after China, the world's biggest producer of the lightweight metal, said it would curb output to try to prevent a repeat of power shortages next year.

China has cut bank loans to aluminum producers by requiring them to invest 35 percent of their own capital in new projects, up from 25 percent. The government also may remove 8 percent export rebates on the metal in 2005 after power shortages this year caused blackouts. Electricity makes up 35 percent of the cost to make the metal, used in window frames, Ford Motor Co. vehicles and Boeing Co. aircraft.

"We will see rising aluminum prices," said Sean Zheng, who helps manage US$100 million in stocks, including Aluminum Corp. of China Ltd., at Beijing-based Ding Tian Asset Management Co. London Metal Exchange prices may rise to US$2,000 a ton next year, he said, which would be the highest in almost 10 years.

Aluminum in London gained 18 percent to US$1,828 a ton in the past 12 months because of rising demand in the U.S. and China. Construction companies are the biggest users of the metal in China, where housing construction rose about 27 percent in the first 10 months of the year from the same period in 2003. The industry accounts for about 40 percent of demand in the country.

"Clearly, any further constraints (on Chinese production) will be positive for aluminum prices with less metal on the market," said Robin Bhar, a metal analyst with Standard Bank, in an interview from London.

While aluminum output in China rose 21 percent to 5.34 million tons in the first 10 months of this year, efforts to rein in production are beginning to show.

China's smelters produced less metal a day in October than September, the first monthly fall since July, said the China Nonferrous Metals Industry Association. The smelters produced an average 18,774 metric tons a day in October compared with 18,867 tons in September.

Controlling investment will be one of the government's priorities next year, the Xinhua News Agency reported Dec. 5, after an economic policy meeting in Beijing attended by President Hu Jintao and Prime Minister Wen Jiabao.

The statement suggests the government has no plans to relax lending curbs that slowed growth to 9.1 percent in the third quarter from a year earlier, compared with a 9.8 percent pace in the first.

"Next year, China's production should slow," said Shen Haihua, vice president of Shanghai-based Southwest Futures Inc., one of the top 10 traders on the Shanghai Futures Exchange. "That means it should import more, lending support to global aluminum prices."

China was the world's seventh-largest exporter of aluminum last year, shipping 370,000 tons. Global production is estimated at 29.2 million tons this year by Barclays Capital. That would be worth US$50 billion based on the average price on the London Metal Exchange.

Source: Shenzhen Daily-Agencies