Spot aluminum price in China is possibly to fall below the cost line of 15,000 yuan per ton after the National Day holiday (October 1-5), which may force domestic aluminum producers to cut production, industry analysts say.

    Aluminum futures price on the Shanghai Futures Exchange arrived at a peak of 20,900 yuan/ton at the beginning of this year,but has declined to 15,500 yuan/ton this week, due mainly to oversupply.

    China's crude aluminum output is estimated to reach 14.45 million to 14.9 million tons in 2008, compared with 14.32 million tons in 2007. Though the output increase is moderate, analysts estimate the nationwide inventory at over 500,000 tons.

    Despite the price decline, downstream enterprises still have no will to make purchases as some aluminum makers, especially big ones, are still expanding their production capacities despite general oversupply.

    Recently, Aluminum Corporation of China Limited (Chalco) (601600.SH; 2600.HK; ACH.NYSE) said it had no plan to reduce production on large scale on the ground of market uncertainties.

    Two electrolytic aluminum enterprises under Chalco reduced their production from June. But the aluminum giant expressed that the reduction was not within its overall strategy.

    Analysts say that the market has to maintain a stable price at the expense of the close of small enterprises.

    They predict that small and midsize enterprises would have to reduce their production by 50 percent to 60 percent, while large ones 20 percent to keep the supply and demand balance in Chinese market.

    It's learned that five electrolytic aluminum enterprises planned to cut production by 250,000 tons around October 1.

    Insiders say that alumina enterprises are lowering product price to reduce their stock, while electrolytic aluminum enterprises would also be forced to cut price to lower than 15,000 yuan a ton due to capital shortage.