SINGAPORE, May 14 -- Aluminum may climb as China, the world's largest producer, ended discounted power rates to high- usage companies as part of the country's efforts to conserve energy and resources.
"The cost of producing aluminum will increase and this is bullish for aluminum prices," said Li Yang, an analyst at state-owned researcher Beijing Antaike Information Development Co. Energy represents as much as half the cost of making the metal used in cars, cans and airplanes.
China stopped selling electricity at discounts to high- consumption companies with immediate effect, the National Development and Reform Commission said in a statement yesterday, and the government will impose financial penalties on companies whose power consumption exceeds state-set limits. Users affected by the policy change include makers of aluminum and ferroalloy.
Aluminum for three-month delivery has dropped 3.4 percent on the London Metal Exchange this year as supplies outpaced demand. The metal declined 0.7 percent to $2,154.75 a metric ton at 12:59 p.m. in Singapore, while prices on the Shanghai Futures Exchange traded little changed at 15,870 yuan ($2,325) a ton, down 8.7 percent this year.
"However, there will be a limit as to how high prices will go because domestic demand isn't too good and stockpiles are high," Li said by phone from Beijing today.
Inventories of aluminum in warehouses monitored by the Shanghai Futures Exchange have jumped 46 percent this year as Chinese smelters ramped up production on expectations that demand will improve as the global economy recovers.
China may add 2 million to 3 million tons of aluminum smelting capacity this year, according to the China Nonferrous Metals Industry Association.