August 8, 2017 / 9:50 AM / 13 days ago

China's top aluminium region Shandong orders 3.2 mln tonnes of capacity shut

* Bulk of closures affect top producer China Hongqiao

* Shutdowns were ordered to be completed by end-July

* New round of environmental inspections ordered -ministry

* New inspections stretch from Shandong to Tibet

By Tom Daly

BEIJING, Aug 8 (Reuters) - China's Shandong province has ordered 3.21 million tonnes of smelting capacity to be shut in the world's top producer of the metal, more than previously expected, as Beijing intensifies efforts to curb pollution in its bloated heavy industries.

News of the cuts - affecting China Hongqiao, the world's biggest aluminium supplier - extended a rally in aluminium prices into a second day, with Shanghai futures hitting their highest levels in more than 4-1/2 years on Tuesday.

In a statement made public on Tuesday but dated July 24, the Shandong Development and Reform Commission (SDRC) said checks had shown areas of the eastern province had 3.21 million tonnes of illegal capacity that was built without permits. With capacity of between 10-12 million tonnes, Shandong accounts for as much as a quarter of China's capacity.

The regional government said in the statement it had ordered Hongqiao to shut 2.68 million tonnes per year of capacity across five projects by the end of July. Another Shandong producer, Xinfa Group, was told to close 530,000 tonnes by the same date, according to the SDRC statement.

The size of the closures was bigger than sector watchers expected, but firms had previously indicated they would implement closures as Beijing ramps up anti-pollution efforts.

Hongqiao said earlier this month it would cut more than 2 million tonnes per year of "outdated capacity", but that new capacity would keep its total at 6.5 million-7 million tonnes. It did not give a timeline or an exact figure.

The Xinfa closure had previously been flagged by the local Chiping government in Shandong.

Hongqiao and Xinfa did not immediately respond to requests for comment.

The shutdowns come as China's Ministry of Environmental Protection (MEP) said on Monday it was embarking on its fourth round of environmental inspections across eight provinces and regions, including Shandong.

Eight teams will be sent to carry out inspections at Jilin, Zhejiang, Shandong, Hainan, Sichuan, Tibet, Qinghai and Xinjiang from Aug. 7-15, the ministry said.

Paul Adkins, managing director of aluminium consultancy AZ China, said that by including Tibet and Qinghai in the latest probe, the MEP is going to "places where you wouldn't expect there to be a lot of air pollution". Tibet has no aluminium production capacity, whereas Qinghai has up to five smelters, Adkins said.

On Tuesday, aluminium prices in Shanghai jumped almost 3 percent for their biggest one-day gain since October last year, hitting 15,620 yuan ($2,330.30) a tonne, their highest since December 2012.

Traders said speculators were piling in with bullish bets in anticipation of tightening supply even as the global market remains awash with surplus metal, some producers are expanding output and concerns grow about slowing manufacturing activity in the world's second-largest economy.

Open interest on the Shanghai Futures Exchange aluminium contract has surged by 27 percent to almost 770,000 lots on the SHFE from just above 600,000 at the start of the month. ($1 = 6.7030 Chinese yuan renminbi)

Reporting by Tom Daly; Additional reporting by Melanie Burton in MELBOURNE; Editing by Josephine Mason and Kenneth Maxwell

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