Aluminum production increased year-on-year in the first quarter of 2011, both in China and in the rest of the world.

Chinese production rose as producers re-started capacity that had been curtailed in the second half of 2010 in an effort to meet energy efficiency targets, according to a report from CRU, an independent business analysis and consultancy group focused on the mining, metals, power, cables, fertilizer and chemical sectors.

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Smelters started to bring this capacity back on-line after the Chinese Lunar New Year in February. Alcoa estimated that 1.1 million tons of capacity a year has been re-started. Outside China, production re-starts have continued, although at a more moderate pace.

Chinese production will not only be supported by re-starts of curtailed capacity, but also by the start-up of new capacity in China's northern and western regions, such as Qinghai province and Xinjiang Uygur autonomous region, where power prices are cheaper.

Given the government's aim of increasing energy efficiency, Alcoa has factored in the closure of low amperage capacity; its China unallocated closures for 2011 and 2012 therefore reflect the stoppage of smelting capacity operating at or below 180 kiloamperes.

However, the Chinese authorities have recently announced that they are seeking to suspend approval of new projects.

This is unlikely to affect capacity currently being built, but it could affect future capacity growth, should this policy be rigorously implemented, and also bring forward the point at which China becomes a net importer of primary aluminum.

Alcoa expects primary consumption for aluminum in China to grow by 11.2 percent in 2011 to 18.7 million tons, and China is expected to be roughly self sufficient for the next few years before becoming a net primary importer from 2014 onwards.

The rail sector will be a major beneficiary of China's 12th Five-Year Plan (2011-2015). The nation has committed to expand its rail infrastructure, both long distance and urban mass transit, in the next five years. It has set aside 3.5 trillion yuan ($536.2 billion) for rail infrastructure, a 55 percent increase compared with the 11th Five Year-Plan period (2006-2010).

This amount will go toward the construction of high-speed rail, express rail, subway and light rail in cities, as well as coal railways.

The Ministry of Transport has expressed a desire to achieve a total rail network of 120,000 kilometers by 2015, a significant increase from the current network of 91,000 kms. Of the total investment, 850 billion yuan has been set aside for rail infrastructure development in 2011.

Government officials have publicly stated that at least 70 percent of equipment for any given rail project must be from domestic companies on a number of occasions. Aluminum demand will be boosted by this development, especially in the construction of high-speed rail.

As part of the energy policy in the 12th Five-Year Plan, China plans to generate 300 gigawatts of coal energy, 40 gW of nuclear power, 120 gW of hydropower, 70 gW of wind power and 5 gW of solar power to meet the needs of the country. The key energy bases will be located in Shanxi and Inner Mongolia and Xinjiang Uygur autonomous regions to serve the energy needs of demand centers in eastern and coastal provinces.

Alcoa expects aluminum demand to soar as a result. It will also be boosted by substituting copper, a practice that is more prevalent in China due to cost sensitivity and the absence of legacy issues where copper is already installed in wiring and cables in the country. It is seeing substitution to copper clad aluminum (CCA) cable and aluminum magnet wire in China from conventional copper products.

The automotive sector recorded a stellar performance in 2010. China comfortably strode past expectations, with annual production and sales exceeding 18 million units in 2010, registering a year-on-year growth rate of 32.5 percent.

Alcoa expects growth rates to fall back to a more sustainable level in 2011 as stimulus measures rolled out by the government to boost auto purchases in 2009 are withdrawn.

The aluminum usage for automobiles in China currently stands at an average of 127.5 kg per vehicle, compared with 145 kg a vehicle in the United States. As such, there is good potential to increase aluminum usage in automobiles and Alcoa expects this to catalyze demand for aluminum further.

To quell speculation in the property sector, the government imposed measures earlier this year including introducing property taxes in Chongqing and Shanghai, raising minimum down payments and banning second home purchases.

While these measures may have the effect of cooling the property market, aluminum uptake from the building and construction sector remains strong.