UPDATE 1-China power fee hike to raise metals costs
Fri Jun 20, 2008 2:02am EDT
reuters.com
(Adds copper, zinc and comment)
By Polly Yam
HONG KONG, June 20 (Reuters) - China's power fee hike will increase costs at electricity-hungry aluminium smelters and have a smaller impact on copper and zinc smelters, smelter officials and analysts said on Friday.
Rising costs would trim profits at the smelters but are not seen forcing them to cut production this year.
"The impact will be mainly on aluminium. For producers of other metals, it will not have a big impact," Heng Kun, chief analyst at Essence Securities in Beijing, said.
China is the world's top aluminium and zinc producer and a major copper producer. Beijing will raise average electricity tariffs by 0.025 yuan a kilowatt per hour (kwh) or about 4.7 percent, from July 1, its first broad increase in years primarily affecting industrial and commercial users, the National Development and Reform Commission, China's top planning body, said on its website. (www.ndrc.gov.cn)
In early June, aluminium smelters said they had expected power fees to rise in the second half, which has supported global aluminium prices.
A source at a power investment group said the state planner had proposed a hike of 0.03-0.05 yuan and the smaller actual rise might leave a room for another increase.
The latest power hike will increase production costs of primary aluminium at Aluminum Corp of China Ltd (Chalco) (2600.HK: Quote, Profile, Research, Stock Buzz) (601600.SS: Quote, Profile, Research, Stock Buzz) by 300 yuan per tonne, investor relations manager Zhang Qing told Reuters.
Chalco, the country's top aluminium producer, plans to produce 3.5 million tonnes of primary aluminium this year, she said.
This would raise Chalco's costs by 525 million yuan ($76.3 million) in the second half of the year.
Some 15,000 kwh are used to produce one tonne of aluminium in China.
"Aluminium smelters are unlikely to cut production on the hike. They are still making profits," Heng said.
Heng estimated cash production costs at smelters that did not have power plants would be below 17,500 yuan per tonne versus spot prices of 18,700 yuan traded in eastern China on Friday.
The hike may not boost Chinese prices in the near term due to expanded output and weak consumption growth, Heng said.
"It will not affect us," a trade manager at one large aluminium smelter equipped with power plants in Henan said.
The manager said the hike might encourage power plants that had stopped production due to high coal prices and fixed power fees to resume generation, which could ease power shortages in the summer and keep aluminium production strong this year.
Jiangxi Copper (0358.HK: Quote, Profile, Research, Stock Buzz) (600362.SS: Quote, Profile, Research, Stock Buzz), the country's top copper producer, see the hike adding "a few ten million yuan" in costs in the second half, executive director Wang Chiwei said.
"It will certainly have a impact. But our electricity consumption is not very big," Wang said.
The firm will produce around 700,000 tonnes of refined copper this year, and Wang said copper smelters in China were unlikely to scale down production on the utility hike because they would remain profitable.
Zhuzhou Smelter (600961.SS: Quote, Profile, Research, Stock Buzz), a subsidiary of Hunan Nonferrous (2626.HK: Quote, Profile, Research, Stock Buzz) and the top zinc producer in China, expects the hike to cost more than 20 million yuan in the second half, board secretary Liu Weiqing said.
He added the firm would maintain its production target of 100,000 tonnes of refined lead and more than 400,000 tonnes of refined zinc this year.
($1=6.8798 yuan) |
