Bloomberg reported that Chinese aluminum smelters may idle their annual capacity by one third, the most in three years, as energy costs soar and prices slump.

Mr Luo Rongjin a Beijing based analyst with Bocom International Holdings Co said that China may produce almost 20 million tonnes of the lightweight metal and its capacity may be as much as 30 million tonnes by the end of this year. It said that monthly output from China, the world’s biggest producer, fell 8.3% in November from a record 1.6 million tonnes in August.

Alcoa Inc, United Co, Rusal Plc, Rio Tinto Group and their global rivals are cutting production after prices fell 19% last year, curbing profits.

Alcoa, the largest US producer that reported its first loss in two years this week said that China may use 70% of its capacity in 2012.

Mr Peter Hickson MD of Global Commodity Research and Basic Materials Strategy of UBS AG in an interview in Shanghai said that “China’s aluminum industry is becoming less and less competitive because power is going up and many producers are making losses.” He said that Chinese smelters may idle 1 million or 2 million tonnes of capacity this year, adding to 6 million tonnes of surplus capacity in 2011.

Mr Daniel Briesemann an analyst at Commerzbank AG in Frankfurt said that “We should watch out for further production cuts in and outside China as many aluminum smelters are operating at a loss given the low prices. Aluminum will be strongly influenced by macroeconomic data and political actions, especially regarding the sovereign debt crisis in the euro zone.”

(Sourced from Bloomberg)