HONG KONG, May 6 -- Aluminium smelters in Henan, which account for nearly a fifth of output in the world's top producer of the metal, are paying nearly 6 percent more for power this month, smelter officials said, putting them on the edge of losses that could spur production cuts.
"From May 1, our fee has increased by 0.025 yuan per Kwh. That sums up to about 400 yuan per tonne," an administrative official at a large aluminium smelter in Henan said.
The hike, applied to all industrial users in Henan, was to help thermal power plants offset increased coal prices and maintain normal generation, the official said.
Spot prices of thermal coal in China's top coal port Qinhuangdao rose by about 2 percent last week and are expected to rise further as Chinese power plants buy more to build stocks ahead of the peak consuming period in the summer.
Henan plans to limit power supplies to aluminium smelters when the power supply is 20-25 percent short from the total demand and ask them to shut when the shortfall reaches above 25 percent, according to a statement posted on the Henan government website on Monday.
Power fee hikes have a major impacts on electricity-hungry aluminium smelters given the fee accounts for around 40 percent of their production costs.
The Henan hike would increase the cash production cost for aluminium smelters to around 15,500 yuan per tonne, compared to the average cost of about 15,000-15,700 yuan for other smelters in China, smelter officials estimated.
The Henan smelter official said he expected local smelters would consider closing some operating capacity if aluminium prices fell to 14,500 yuan and stayed at that level for a while.
Abundant supply is weighing on spot Chinese aluminium prices <AL-A00-CCNMM>, which have dropped nearly 2 percent so far this month to around 15,600 yuan on Wednesday.
"Henan smelters would calculate the cost and metal price," a smelter official in Guizhou province, said of possible production cuts in Henan.
Smelter officials said weak metal prices were prompting smelters to cut stocks of alumina, the main raw material for making aluminium.
Spot alumina prices have stayed around 2,800 yuan per tonne since mid-February. Top producer Chalco <2600.HK> <601600.SS> has kept spot alumina prices at 3,000 yuan since early January.
But spot alumina prices in the international market have risen 16 percent since February to $378 per tonne, based on the latest tender by Indian producer NALCO <NALU.BO>.