Home@ (Repeats Oct. 24 item. The opinions expressed here are those of the author, a columnist for Reuters)
* China's aluminium production: http://tmsnrt.rs/2l9Spmp
LONDON, Oct 24 (Reuters) - Winter is coming in China and that means large swaths of industrial capacity in the regions around Beijing and Tianjin must cut production.
Chinese President Xi Jinping has promised "blue skies" will replace the choking smog that envelops many cities in the country's industrial heartlands, particularly over the "winter heating" months.
Heavily polluting industries in the targeted regions will therefore have to reduce output between November and March. If that means massive disruption to supply chains, so be it.
Aluminium production will be cut by 30 percent.
Ironically, the "green" metal, used in ever greater quantities by automotive makers looking to reduce vehicle weight, is made using coal power in this part of China.
And coal is enemy number one in Beijing's eyes.
How much production will be cut is of crucial significance to the aluminium market since China is the world's largest producer and a huge exporter of semi-manufactured aluminium products.
The lack of a ready answer to that question is keeping the London aluminium price expectantly poised just below September's five-year high of $2,199 per tonne.
The winter curtailments also apply to key inputs in the smelting process such as alumina and carbon anode. The alumina price has recently surged, although there is no answer to how this part of the sector will be impacted.
It is a complex pricing conundrum, transmitting instability into the global marketplace.
It is also a massive experiment. Beijing has wrenched all the levers of a centrally planned economy to wage war on smog.
Soon we'll see how successful it is.
Graphic on China's aluminium production:
LOST IN THE COUNT
Aluminium's focus on what exactly is happening in China has shone a harsh light on the official figures released monthly by the China Nonferrous Metals Industry Association (CNIA) via the International Aluminium Institute.
A history of outsized revisions and unusual monthly swings was previously a headache only for the market's statistical boffins.
But now it's everybody's headache.
As a timely reminder of the fragility of this apparently "hard" data set, CNIA has just added a million tonnes of production into its calculations. Backdated to the start of last year, this previously missing capacity is now included in the "unreported" column.
It's only a small part of the statistical jigsaw, however. Some analysts argue the CNIA undercount of actual production is much larger with as much as 6 million tonnes annualised, a tenth of global output, now "missing".
Problems with the count date to July, when national production, at least according to the official figures, plunged by 4.1 million tonnes annualised.
This was broadly in line with the announced closures of "illegal capacity", those smelters operating without the full gamut of licences. But smelters can't power down that fast, suggesting they simply dropped out of the spreadsheet rather than out of production.
For what it's worth, the official figures show national output running relatively smoothly over the last two months with a marginal net increase of 21,000 tonnes.
That should change over the winter months, with up to 1 million tonnes of production at potential risk.
The size of the hit should become more precise as individual cities release their targets.
Liaocheng, for example, has just published its order that Xinfa Group, one of China's top producers, switch off 30 percent of the pots at its smelter in the city, representing around 382,000 tonnes of capacity.
But a clearer statistical future isn't much use if the recent statistical past is so murky.
Nor is it likely to get any clearer. This war of numbers is probably going to last as long as Beijing's war on smog.
MITIGATING THE HIT?
How China's aluminium supply chain adapts to these closures is highly uncertain.
There is some cushion against disruption.
It's worth remembering that, even allowing for a potential undercount, the country's production is officially still up 5 percent this year.
Rusal and Alcoa have just released third-quarter results and assess the Chinese market as being in surplus this year to the tune of 1 to 2 million tonnes. (Both, by the way, also have offsetting deficits in the rest of the world.)
In China itself, visible aluminium stocks have been growing. Inventory registered with the Shanghai Futures Exchange is at a record high of 615,370 tonnes.
All of which suggests Chinese producers have been maximising production to compensate for the coming collective power-down.
ALUMINA PRICE ROCKETS
There may, however, be some powerful knock-on shocks from curtailments in aluminium's raw materials supply chain.
Factbox on alumina curtailments:
Alumina refineries are also taking their 30-percent cuts. In the case of Chalco's Zhongzhou unit in Jiaozuo city in Henan, it had to close as early as September.
If alumina closures exactly match aluminium closures, the two markets should rebalance smoothly. That, however, seems unlikely at this stage.
The market seems to be betting on disruption. The CME alumina contract, indexed against Platts' assessment of the spot market, has jumped from $315 per tonne at the start of September to a current $464.67.
It's also worth noting that China's alumina imports have recently picked up after slumping in the first half of the year. Down 17 percent in the first six months, the cumulative total through September is now up 3 percent.
The country may need to import a lot more still, but how much is unknowable, given the lack of visibility on the scale of curtailments.
SAME TIME NEXT YEAR?
Chinese winter is going to instil unprecedented uncertainty into a global aluminium supply chain that has grown accustomed to worrying about too much rather than too little production.
Quantifying the likely outcome of the winter curtailments is tricky work in progress, leaving prices beholden to the latest city to add its part to the production jigsaw.
But even more unsettling is the fact that this is all going to happen again next year. And the year after that.
President Xi, speaking at last week's opening of the Communist Party congress, promised a years-long battle to achieve his "blue skies" dream.
With a promise like that, China's aluminium sector, like many others, can only hope that this year's winter curtailments do the trick.
Because if they don't, next year's winter heating season could be even more disruptive.
Beijing will be keeping a hawk-like eye on its urban pollution gauges over the next few months. The rest of us will too. (Editing by Dale Hudson)