Editor’s note: This piece is by June Wang, from our office in AZ China. June was having trouble accessing the site, so I am uploading it for her.

According to the IAI, China’s aluminium production reached 2.2 million tonnes in June (including unreported production). That gives a daily rate of 73,500 tonnes per day, a rise of 6% over May.

In our view, the main reason for this is the return of idled smelters. With the price rising and subsidies guaranteed by the local governments in several provinces, many smelters restarted gradually in May and June.

For the first half of 2014, the total volumes of China’s aluminum production were 13.0 million tonnes. AZ China recently increased its forecast for 2014 production, from 26.0mt to 26.5mt, in response to the return of the idled smelters, and this revision is being supported by the most recent numbers.

As we know, because of the sluggish market, heavy losses and falling prices, helpless smelters chose to cut capacity levels, and some to even close permanently. The total volume of production cuts reached 1.4 million tonnes just in March to May, based on our statistics. However, entering into June, many smelters restarted their halted capacities. So far, the restarting is still in progress, as it’s not an instantaneous process to heat hundreds of furnaces back up to 950°. If nothing else, the production numbers will be bigger than the previous months even without new capacity being added. To a large degree, the production should remain at high levels over the next few months.

However, it is not only returning capacity that has boosted production. The additional capacity of new construction will also help push production levels to a new peak. According to our statistics, around 2 million tonnes of new capacities have been announced to come on-line by year-end, which is much larger figure than that of the total stopped or closed. Of course, it takes even longer for a new smelter to get up to speed, but that simply means new record levels in future months.

Supply remains ahead of demand in China, and although demand has shown a turnaround in recent weeks, supply is set to exceed demand by about 1 million tonnes, in our estimation.