Hit by tight credit, low prices, China smelters put off

alumina imports

HONG KONG, March 21 (Reuters) - China's aluminium producers are postponing taking shipmentsand cutting spot imports of raw material alumina, sources said, as an

oversupplied market faces additional pressure from tighter credit and falling metal prices.Reduced shipments to the world's top alumina buyer will eventually help align inventory levels withoutput and stabilize prices but could crimp margins in the interim

at global alumina producers such as BHP Billiton and Alcoa Inc.Many banks in China have slashed lending to bloated industries from steel to aluminium by asmuch as 20 percent, hardening Beijing's bid to tackle surplus capacity

that it has fought with little success in the past decade.But unlike copper and, to some extent, iron ore, where the use of the commodities in financingdeals has fuelled fears of their unravelling and hit prices,

aluminium's ordeal is more linked to excess supply and the limited cash flow among smelters.China's aluminium market is in a surplus now with stocks on the Shanghai Futures ExchangeAL-STX-SGH at 351,047 tonnes on Friday, the highest since August 2013.

Shanghai aluminium futures prices fell on March 20 to their lowest on record since contracts begantrading in 2005 and have lost more than 8 percent this year.The tough market conditions have led the Chinese smelters to cut purchases of alumina sincemid-February. China's alumina imports fell to 464,820 tonnes in February

from 641,987 tonnes in January, latest customs data showed on Friday.The drop in Chinese imports has pulled down spot market prices for Australian alumina ALA-CNIMPnearly 7 percent from January.But the smelters are now being forced to take drastic steps."Some smelters that contracted to buy imported alumina earlier are now unable to take theshipments, while others have already delayed the shipments," said an

executive at an aluminium smelter in Guizhou, who declined to be named because of the sensitivityof the matter.The volumes of the postponed shipments could not be ascertained. Defaults on the contractedshipments were unlikely as both parties would be keen to avoid legal

tangles and such situations in the past were successfully resolved through negotiations, thesources said.Some of the other steps smelters are taking now include keeping alumina stocks as low as possibleto cut financing costs and in expectation of paying less to buy them

in the future.A trader at a large Chinese trading house said the firm had resold some alumina imports on

expectations of prices falling.SHAPE UP, OR NO LOANSBank credit is getting harder to come by for the smelters.An executive at a large smelter said Chinese smelters are finding it harder by the day to get lettersof credit from banks. "The whole industry is having a problem of

cash," said the executive, declining to be named because he was not authorised to talk to media.A loans officer at China Minsheng Banking Corp , the country's biggest non-state lender by assets,said the bank has started to reduce loans, including limits on

letters of credit, for heavily geared aluminium companies."We're looking at their business, their revenues and their debt a lot closer. For those companies thatdon't look like they're in a great shape, we've started to cut

our loans. That's a very clear message from the top since the start of the year," said the Minshengofficer.A loans officer at state-backed Bank of China said the bank had already stopped all financing dealsfor base metals since last year.China's smelters have also cut production, trimming demand for alumina. About half a milliontonnes of aluminium capacity had already closed so far this year and the

third-largest maker China Hongqiao warned this week some face closure.A more recent headache for the smelters is the weakening yuan, which raises the costs of aluminaimports. China's yuan was just below a 13-month low against the

dollar on Thursday."The biggest problems are reduced credit given to smelters in China and yuan depreciation," said atrader at an international trading house referring to Asia's

slowing alumina market.