China aluminium firms likely to snub govt call to shift output overseas
* China to urge aluminium producers to invest overseas rather than expand at home
* But few firms likely to make shift in short term
* Mkt participants say suggestion shows govt clutching at straws in battle with oversupply
* Threat of longer term switch abroad could spook foreign rivals
HONG KONG, Sept 6 (Reuters) - China plans to urge local aluminium producers to ramp up overseas investment rather than expand at home, signalling its growing desperation to ease a domestic supply glut.
Market participants said the government was clutching at straws and that few firms in the world's largest aluminium consumer and producer would move capacity overseas in the short-term as oversupply is an international problem.
But the possibility of a longer term shift could spook international smelters such as Alcoa and Rusal, who would fret that Chinese players could undercut their businesses - especially if they receive subsidies as some currently do domestically.
China accounts for about half of global production and oversupply in its aluminium sector has helped push the world's inventories to a record high and prices to a four-year low below $1,800 a tonne in June.
It has been scrambling to come up with solutions to the problem of overcapacity at home, looking to balance aluminium firms' desire for long-term expansion with the grim reality of the market.
Industry sources said the Ministry of Industry and Information Technology (MIIT) and National Development and Reform Commission (NDRC) had been in discussions with aluminium smelters and that new measures would be announced soon.
They said that along with the plan to encourage shifting some production overseas, the measures would reinforce previous steps to boost aluminium consumption domestically and phase out outdated capacity.
"Smelters will not take it too seriously for now," said a trading manager at a large smelter, when asked about the call to move capacity abroad. He declined to be named as he is not authorised to speak with media.
The outlook for aluminium prices is bleak, with rule changes for industrial metals warehouses and increased scrutiny by regulators threatening to unleash a wave of stored aluminium.
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