SHANGHAI, May 14 -- Chinese aluminum producers are unlikely to cut production in the near term in reaction to increases in power prices announced by the country's top economic planner, industry participants said Thursday.
Electricity rates for sectors including galvanized aluminum, steel and cement will be raised by CNY0.05-CNY0.10 a kilowatt hour from June 1, according to a statement published on the website of the National Development and Reform Commission.
"Halting a production line costs a lot of money, and it's very unlikely that we'll have to cut output just to deal with some electricity price hikes," said an official with Qingtongxia Aluminum Group, which expects to produce 800,000 metric tons of galvanized aluminum this year.
The increase in electricity prices will translate into an increase of CNY600/ton in production costs, a Beijing-based trader said.
"Most Chinese aluminum producers are struggling with production costs these days due to rising energy and electricity prices, but as long as they can make ends meet or see some small profit margins, they won't stop producing," he said, adding that production costs for galvanized aluminum are around CNY15,500/ton based on current alumina prices, about half of which is attributed to power costs.
Those producers with their own power generators will be the least affected, analysts said.
Meanwhile, aluminum prices will be well-supported thanks to the higher power tariffs, despite excess capacity and high inventories, analysts said.
According to latest data from the Shanghai Nonferrous Metals Network, aluminum inventories excluding warehouse stocks stand at 1.1 million tons, while newly-added aluminum capacity is expected to reach 2 million-3 million tons this year, China Nonferrous Metals Association's vice chairman Wen Xianjun said last week.