Will Aluminum Smelters Benefit from Recent Power Tariff Cuts?

SHANGHAI, Apr. 9 (SMM) – China decided yesterday to lower power tariffs for industrial and commercial users of power by 0.018 yuan ($0.00294)/Kwh, which will help cut power costs for aluminum smelters, Shanghai Metals Market understands. 

 

Assuming 13,800 Kwh of electricity is needed to produce one tonne of aluminum, the power tariff cut equates to a 248 yuan/tonne cut in power costs. Power costs account for as much as 37% of total costs for aluminum smelting, SMM statistics showed. 

 

However, lower power rates are a double-edged sword since the corresponding decline in power costs will weaken cost support for aluminum prices. SHFE 1506 aluminum contract took a hammering immediately after the news, with prices diving to 13,110 yuan/tonne this morning from yesterday’s closing price of 13,385 yuan/tonne.