Aluminum Corp. of China Ltd. (ACH)

[*MARINE 1*]

UPDATE 1-China eyes cheaper electricity for aluminium firms (Aluminum OF China)




By Polly Yam
HONG KONG, Nov 19 (Reuters) - China's electricity producers have started
cutting the fees at which they sell power to aluminium producers, smelter and
power sources said on Wednesday, which could help smelters avoid further output
cuts and boost flagging demand for electricity.
The aluminium industry in the world's biggest producer and consumer of
the metal uses around 6 percent of the country's electricity output, but has
been cutting back sharply in the face of lower prices.
Provincial governments are keen to maintain local aluminium production to
save jobs as the economic slowdown bites, smelter officials said, while power
firms are facing sharply lower demand.
The country's industrial output slumped to a 7-year low in October and
demand for power has slowed since late summer, with power production falling in
October for the first time in a non-holiday month for a decade.
While power prices are state controlled, some provincial governments have
already cut prices to smelters, and others are planning cuts. Power producers
submitted a proposal to the central government on Wednesday to be allowed to do
the same.
Power producers had asked the State Council, China's cabinet, to formally
allow local power plants to make deals with aluminium smelters directly at fixed
prices, which would be lower than prices set by Beijing, a source at a power
group involved in submitting the proposal said.
"We will ask the government to allow local power plants to sell
electricity to aluminium smelters directly through regional grids," the source
said.
"Such prices should be lower than official ones," he added.
Smelter officials said power fees of aluminium smelters in Guizhou and
Yunnan provinces are expected to be cut by 0.03-0.05 yuan per kilowatt hour from
December, about 10 percent of the current levels. Fees to smelters in Ningxia
and Inner Mongolia had already been reduced.
China produced 1.09 million tonnes of primary aluminium in October, down
0.9 percent on the year for the first fall in years. The output consumed about
15.232 billion kilowatt hours of electricity, 5.8 percent of China's total
output.
About one million tonnes of aluminium production capacity, including
720,000 tonnes at Chalco, has been shut since Oct. 23 when production costs
surpassed prices in China by more than 2,000 yuan per tonne at 15,500-16,500
yuan.
For a factbox of China's aluminium cuts, click on
But production costs have fallen to around 13,000 yuan per tonne now,
given lower prices of raw materials such as coal and alumina, the main material
for aluminium production, smelter officials said. The costs could fall to around
12,000 yuan in coming months.
Spot aluminium traded at about 13,680 yuan on Wednesday, making
production profitable.
"Smelters will not cut more production, given falling costs," a senior
executive at a large aluminium smelter said.
But smelters are unlikely to resume production at the shut capacity until
the first quarter of next year, given weak domestic demand and high restart
costs, smelter officials said.
By Reuters calculations, restarting a modern Chinese smelter with
capacity of 100,000 tones a year cost around 53 million yuan in mid-October.
Fears of a global economic slowdown prompted by the financial crisis have
reduced orders for aluminium products from buyers both overseas and in China.
About 800,000 tonnes to 1 million tonnes of primary aluminium ingots,
more than 70 percent of China's October output, are estimated to be sitting at
private and public warehouses, and smelters' yards, while aluminium inventories
in LME warehouses jumped another 81,975 tonnes on Wednesday to 1.7 million
tonnes, the highest since January 1995.
"Chinese smelters won't cut more production. But overseas smelters may
do, given weak demand in the global market," the Guizhou smelter source said.
Aluminium for delivery in three months on the London Metal Exchange has
fallen 21 percent since the end of September to $1,905 a tonne on Wednesday,
down 44 percent from the July record high.
($1=6.83 yuan)
(Editing by Michael Urquhart) Keywords: CHINA POWER/ALUMINIUM
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