Train Wreck du jour:
Let's see power going up, alumina's up. Is credit being extended to the money losers? If not, 2 + 2= Train Wreck.
Reuters
Power fee hike threatens China aluminium smelters
Friday April 23, 6:35 am ET
By Polly Yam
HONG KONG, April 23 (Reuters) - China's power-hungry aluminium sector may be forced to cut more production or shut outdated smelters when the country raises its power fees on May 1 for the second time this year, industry officials said on Friday.
They said aluminium smelters would receive larger price hikes than other industrial users as Beijing aimed to trim excessive capacity for the metal, which could stretch to 1.8 million tonnes more than output this year.
"We were told our power fees would be raised by 0.1 yuan a kilowatt hour from May 1," said an official for a small smelter in the southwestern province of Guizhou.
China's sizzling economy, which expanded 9.7 percent through the first quarter this year, has increased energy consumption nationwide, provoking power shortages since the end of last year.
The country's power shortfall for 2004 would be around 30,000 megawatts, said China's State Grid Corp. About 15,000 kilowatt hours was needed to make a tonne of aluminium, officials said.
Power fees to the industrial sector were seen by one smelter official rising by 0.03 yuan a kilowatt hour from May 1, but opinion varied on the size of the imminent hike. China lifted the fee by 0.008 yuan on January 1.
An official for a smelter in Henan province said his plant would have to pay 0.43 yuan a kilowatt hour from May 1, compared to 0.33 yuan currently -- a rise of 0.1 yuan.
IDLE CAPACITY
China's aluminum output would jump 19 percent to 6.6 million tonnes this year, but some 1.8 million tonnes of capacity would be idle due to the power shortages, Merrill Lynch said in a report last month.
Smelters directly consume 4.1 percent of China's generated power, it said.
Official data showed China, the world's second largest electricity consumer after the United States, generated 479.36 billion kilowatt hours in the January-March quarter, up 15.7 percent from the same period of last year.
Higher power fees will increase cash production costs of aluminium producers such as Aluminum Corp of China Ltd, which aims to produce 760,000 tonnes of aluminium this year.
The expected power hike would also speed up the closure of environmentally unfriendly Soderberg systems, which consumed more power than modern smelters and were required by the government to shut down by the end of 2004, officials and analysts said.
Around 600,000 tonnes of aluminium capacity had been closed between December 2003 and mid-April 2004 due to China's shortages of power and alumina, the key raw material for making aluminium, state-controlled Beijing Antaike Information Development said.
Soderberg systems accounted for around two-thirds of this 600,000 tonnes, said an Antaike analyst. He added about another 600,000 tonnes of Soderberg capacity were still in operation.
HIGHER POWER HIKE
Smelter officials said they had not been notified officially about the increase but that they understood it would be higher than to other industrial sectors and would differ between smelters.
"Usually, we only see the document on the day when the hike starts," one smelter official said.
Local power operators would consider three factors -- pollution, capacity and legality -- when setting power fees to smelters, industry officials said.
They said small smelters and those using Soderberg technology would have to pay the highest fees. Capacity built after 2000 would also be charged more, they said.
"The hike will also be different depending on whether the capacity was approved by Beijing or not. Big smelters that were approved by the central government will be in a better position," one official said. |
