Aluminum producers staggering as factories lack orders

Market data show that aluminum prices fell 9 percent year-on-year to 14,700 yuan a ton in June this year, according to the NDRC.

In 2012, the national average selling price of electrolytic aluminum was 15,636 yuan a ton, while the average production cost reached 16,200 yuan a ton, putting 93 percent of producers into the red.

The government has taken several steps, including setting a cap on total output, monitoring financing for the industry and environmental standards for new projects. In line with the national policy, four electrolytic aluminum producers with a total capacity of 260,000 tons were ordered to close in 2013. All four are in Henan province, which account for about one-quarter of China's electrolytic aluminum output.

Producers in the province face multiple challenges including soaring production costs, declining product prices, shrinking demand and rising inventories.

However, Xu said the "Henan dilemma" is overtaking the industry nationwide.

To cut production costs, many companies are moving their plants from eastern areas with higher electricity rates to western regions such as Gansu province and the Xinjiang Uygur autonomous region. These local governments welcome the investments, which can push up their local GDP levels.

However, the NDRC said, some new electrolytic aluminum projects "did not abide by State rules in western China", though it didn't give further details.

Xu said that relocation for short-term benefits was unwise.

"These companies might make money for one or two years because of cheaper electricity rates and incentives offered by local governments," he said. "But then what? Without core products with competitiveness, it's still a dead-end."