SHANGHAI, May 10 (SMM) -- Aluminum smelter officials say aluminum smelters in Henan province are paying nearly 6% more for power this month, increasing the risk of financial losses and possible production cuts.

"From May 1st, fees have increased by RMB 0.025/kwh, and adds up to about RMB 400/mt," reported one administrative official at a large aluminum smelter in Henan province.

The price increase applies to all industrial users in Henan province, and is designed to help thermal power plants offset higher coal prices and help power plants maintain normal operations.

Spot prices of thermal coal at China's top coal port of Qinhuangdao rose by almost 2% last week, and are expected to rise further as Chinese power plants purchase more coal ahead of the peak consumption period throughout the summer months.

Henan province plans to limit power supplies to aluminum smelters when the power supply is 20-25% short from the total demand, and will require smelters to shut down when the shortfall reaches above 25%, according to a statement posted on the Henan government website on Monday.

SMM believes China's State Council has begun to strengthen price reforms for resources  including water, electricity, fuel, and natural gas, and has moved to cancel local preferential electricity prices. In this context, preferential electricity prices given to aluminum smelters in Henan province will now face a strong challenge.

According to SMM sources, the largest increase in electricity prices this time may reach RMB 0.085/kwh. At present, all parties are coordinating final adjustment of programs, with a final decision to be announced by authorities.  In addition, other provinces that employ preferential electricity prices will also face the possibility of higher electricity prices for aluminum smelters.

To contact the writer on this report: ericzhang@smm.cn

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