German aluminum output of 428,369 tonnes between January and May was up 5.3% from the same period a year earlier.

Mr Christian Wellner MD of GDA said that “The outlook for aluminum remains optimistic because customer industries are also continuing to develop positively. Germany’s aluminum industry is confident that production growth will continue in the H2 of 2011.

Preliminary GDA data showed that German January to May production of primary aluminum rose by 21.9% to 180,632 tonnes. Output of secondary aluminum smelters declined by 4.3%. Production of aluminum products is also rising. Output of rolled products increased by about 4.3% to 814,637 tonnes. Extrusion press producers raised output by 11.8% to 255,847 tonnes.

Aluminum prices on the Shanghai Futures Exchange continued to soar on Thursday as investors eyed the metal as an alternative to copper.

The most active aluminum contract, for October delivery, rose about 1.4 percent to settle at 18,455 yuan ($2,860.58) per ton. The contract was up 4.9 percent since the previous Friday, far more than other base metals. For example, the most traded SHFE copper contract was up 1 percent for the week.

Aluminum fundamentals have been strong lately, which has attracted speculators betting that prices will rise, according to Tong Changzheng, an analyst at Huatai Great Wall Futures.

Over the last few months, several analysts have told the Global Times that aluminum’s fundamentals are the strongest of the SHFE-traded base metals.

Some analysts have suggested that copper prices above 70,000 yuan per ton are just too high for most buyers, especially amid the current dour global economic landscape.

The October delivery copper contract slipped about 0.2 percent on Thursday to settle at 72,710 yuan per ton, bouncing back after falling 0.6 percent when the market opened.

The benchmark three-month copper contract on the London Metal Exchange lost 0.4 percent in Wednesday’s session, before inching up on Thursday. It was trading at $9,792 per ton, up 0.1 percent when the SHFE closed.

With a limited upside for copper, investors may have turned to aluminum.

But if this is the case, it won’t be much of a trend. SHFE aluminum rapid rise this week is based on a favorable short-term supply and demand basis, said an analyst surnamed Yuan with Shanghai East Asia Futures.

“Right now, investors show a preference for a short-term imbalance between supply and demand because of the bleak economic prospects,” Yuan said.

Zinc for October delivery slipped 0.1 percent to settle at 19,010 yuan per ton. The September delivery lead contract gained about 0.5 percent to settle at 17,645 yuan per ton.

China’s Ministry of Environmental Protection has ordered East Hope Group’s alumina refinery in Henan province to shut down production facilities that had not been approved.

The ministry said East Hope (Sanmenxia) Aluminium, the alumina arm of the large aluminium and agricultural products group in China, had been given approval to build annual capacity of 700,000 tonnes in two phases in Sanmenxia city in the central province. But the refinery had built extra 400,000 tonnes of capacity without an additional approval, according to a statement posted on the ministry website on Thursday.

The refinery also had added another two phases in the construction of alumina capacity and four power generators that all had not been approved by the ministry, the statement said.

The ministry ruled that East Hope (Sanmenxia) had to shut down units with 400,000 tonnes capacity and the added two phases of alumina production capacity. The refinery was also fined 100,000 yuan, said the statement dated May 23.

The statement did not disclose the total capacity involved and the timeframe of closure.

East Hope Group’s metal arm operates the alumina refinery in Henan and an aluminium smelter in Inner Mongolia in the north.

The group’s website does not provide capacity of the alumina and aluminium plants.

Industry sources estimate East Hope’s alumina refinery has more than 2 million tonnes of annual capacity and the aluminium smelter has about 1 million tonnes.

China, the world’s top consumer of alumina used to produce primary aluminium, has more than 41 million tonnes per year of alumina capacity.

China’s Henan Xichuan Aluminum has raised its primary smelting capacity to 200,000 mt/year, which is an increase of 54% from its previous capacity of 130,000 mt/year, a company source said Wednesday.

“The government’s power rationing in the fourth quarter of last year kept us from raising capacity then, but the situation has improved and we’ve started up all the potlines this month and have now reached full capacity,” the source said.

The company now expects to produce about 170,000 mt of aluminum in 2011, which is a sharp jump of 70% from the 100,000 mt achieved in 2010.

“Actual output last year was also affected by the power issues at the year-end,” the source said.

Henan Xichuan sources alumina feed for its smelting operations from Henan refiners, on both a term and spot contract basis.

It is reported that China’s National Development and Reform Commission, the top economic planning agency, announced on Thursday an electricity price rise for non-residential use of 0.028 yuan (0.4 US cents) per kilowatt hour on average nationwide effective Friday. The electricity tariff rise is estimated to increase the production costs of electrolytic aluminum by nearly 400 yuan per metric ton (tonne).

Currently, producing one tonne of electrolytic aluminum consumes about 14,500 kWh of electricity. Thus, given an average price rise of 0.028 yuan/kWh, the production costs for electrolytic aluminum will be raised by around 400 yuan/tonne.

“The power adjustment scheme of each province hasn’t come out yet, so the influence on aluminum producers in different regions cannot yet be estimated,” said Lan Ke, analyst of the nonferrous industry with Southwest Securities.

This is definitely not good news for large power consumers such as Chalco and Jiangxi Copper.

China’s current production costs of electrolytic aluminum stand at around 13,500 yuan/tonne, almost half of which is attributed to power.

For producers with captive power plants, including Shenhuo, Zhongfu, and Jiaozuo Wanfang, the power price hike won’t have such a strong negative impact. Furthermore, those producers will enjoy the benefit of rising aluminum prices caused by the power price hike.

Aluminum prices in the near future probably little affected by costs hikeLan said that the higher production costs caused by the electricity price rise, in turn, will push aluminum prices higher.

On Thursday, Chalco, the listed arm of China’s top aluminum producer Chinalco, raised its ex-factory price for aluminum ingots by 100 yuan/tonne to 15,200 yuan/tonne. The price has risen by 200 yuan/tonne since the beginning of November.

Meanwhile, the benchmark aluminum contract on the Shanghai Futures Exchange (SHFE) closed up 0.62 percent to 15,651 yuan/tonne on Friday.

However, market watchers also say the power price rise was widely anticipated, and has been priced into futures contracts for the power-hungry metal over the past two weeks. “Along with gains in other metals, the official announcement just became a lame duck,” Tong Changzhen, an analyst with Great Wall Futures, told Dow Jones on Friday.

Meanwhile, analysts said high stocks and an oversupply are the main factors that could slow or reserve aluminum’s upward momentum in the near and medium future.

China’s aluminum capacity currently under operation stands at around 15 million tonnes, according to statistics from Southwest Securities. As the aluminum price stabilizes above 15,000 yuan/tonne, there will be more production capacity entering into operation. Chalco forecasted in its Q3 report that China would see about 18 million tonnes of production capacity under operation by the end of this year, returning to its pre-financial crisis level.

Direct power supply talks unclear nowIn late October, Fushun Aluminum, a subsidiary of Chinalco, was approved of direct power purchase from Huaneng Yimin power plant, saving Fushun Aluminum about 0.07 yuan/kWh in electricity consumption.

It was the first trial direct power purchase in China since the Chinese government announced to carry out direct power purchase on a trial basis in 15 aluminum enterprises, 9 of which are Chinalco subsidiaries.

Chinalco achieved a cooperative agreement for direct power purchases with China Guodian Corporation on October 13. Chinalco, the largest aluminum producer in China, revealed a strong desire to achieve direct power supply for other subsidiaries by the end of 2009.

“However, at this time, even if they get direct power supply, the preferential margin won’t be large,” said an industry analyst.

As the profit per tonne of aluminum already reaches between 1,000 and 2,000 yuan, and the operation rate of power generators is rising, it has become difficult for aluminum producers to lead the negotiations for direct power supply.

It is reported that Chalco, the listed arm of China’s top aluminum producer Chinalco, announced on Tuesday that its net profit in the third quarter had tumbled 87.7 percent from the same period last year mainly due to the drop of its sales prices.

Chalco said that its net profit came to 21.3 million yuan in the July to September period, compared to 173 million yuan earned in the same period of the previous year.

Dragged on by faltering market demand, aluminum prices in China nearly declined 20 percent year on year in the third quarter to 15,200 yuan/ton.

The company’s revenue in the third quarter also slipped 10.7 percent from 19.1 billion yuan from the period one year earlier to 17.1 billion yuan.