SHANGHAI, Sept. 1 (SMM) -- High temperature and rainfall shortage in south China has caused power deficit to exceed 10 million kw at the China Southern Power Grid, with the power supply gap reaching 10%, the most severe in five years. According to SMM sources, renewed rumors report that aluminum producers in Guangxi province will cut production during September, and coupled with the approach of seasonal peak-demand period, aluminum prices will be boosted.
SMM sources report that the provincial government has long informed enterprises about power restriction and production cuts, and taking into account enterprises’ own operating conditions, the government used a variety of adjustment methods to try to ensure the electrical load at aluminum producers in Guangxi province. However, with widening electricity supply gap and approaching low-water period, the local government has confirmed that local aluminum producers should cut power consumption, and sources report that enterprises will cut power consumption by 10%-25% based on their actual conditions, and production capacity required to be cut during September already confirmed by SMM accounts for approximately 15% of total capacity in operation (810 kt/yr) in Guangxi province.
However, the exact time for production cuts is not identified, and the production cut plan will be completed in accordance with power load requirements. With regard to duration of production cuts, due to the presence of the low-water period, aluminum producers will not consider restarting production until after the power shortage eases in high-water period in 2012 and electricity prices fall to the level during high-water period amid normal operation of overall economy.
As aluminum capacity in Guangxi province only accounts for about 4% of China’s total aluminum capacity in operation, any effect on aluminum supply from production cuts in the province will be limited. Guizhou province will likely be the next region that will see large-scale aluminum production cuts caused by widening power supply gap, and a small number of small-scale aluminum producers in Guizhou province have held down electricity load from time to time, but their normal production has not been affected yet, and local enterprises said there is a possibility of deterioration in the future.
Expectations of production cuts at aluminum producers in southwest China will exert positive impact on domestic aluminum markets. A recent SMM survey shows that operating rates at downstream processors will improve significantly during September. The seasonal peak-demand period in September and October will help drive up demand for automobile and the construction of affordable housing, which will further stimulate aluminum consumption. Domestic aluminum market will likely recover after experiencing brief weakness, and aluminum prices are expected to be boosted for the foreseeable future.