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SMM Survey: Here is Everything You Need to Know about Power Rationing and its Impacts on the Broad Metals Market
Sep 30,2021 20:05CST
Source:SMM
Power rationing has been staying in the spotlight of the market for quite some time, but the current massive power rationing policy does not come out of nowhere. Nonetheless, the policy has brought great influences, temporary or far-reaching, to the whole metals industry. Here is a brief and comprehensive summary of the policy and its impacts on individual metals.

SHANGHAI, Sep 30 (SMM) – Power rationing has been staying in the spotlight of the market for quite some time, but the current massive power rationing policy does not come out of nowhere. Nonetheless, the policy has brought great influences, temporary or far-reaching, to the whole metals industry. Here is a brief and comprehensive summary of the policy and its impacts on individual metals.

SMM survey: The impact of power rationing on the copper industry chain

Regions implementing power rationing

Jiangsu, Guangdong, Shandong, Taizhou of Zhejiang, north-east China

Brief on power rationing

Jiangsu: Jiangsu has received notices of power rationing since September 16. SMM understood that copper processing enterprises in Changzhou and Taizhou began to suspend production from the Mid-Autumn Festival and will remain closed until the end of September; after the holiday, Yixing and Nanjing also received notices of power rationing. Therefore, copper rod companies has ceased production.

Shandong: SMM has received the feedback from companies since September 21 that many areas in Shandong are banned from production during 4-12 pm.

Guangdong: Industrial users across cities and counties in the Pearl River Delta region, like Guangzhou, Shenzhen, Dongguan, Foshan, Zhongshan, Qingyuan, Zhaoqing, Zhuhai and even Shantou as well as Jieyang, have undergone the power rationing since September 16. Most copper companies have been notified to implement the 4-on 3-off shift schedule. And several areas have gone so far as to operate 1-on 6-off. Specifically, all production and operational power supply will be cut off from 8:00 am to 11:00 pm.

Taizhou of Zhejiang: Staggered peak production has been implemented since September 26, except for the top 100 companies. The specific time is from 6:00 pm to 7:00 am, which will be effective for a week;

North-east China: State Grid Jilin Electric Power Supply Company has taken power rationing measures at 4:37 pm on September 23 on which day a notice was issued around 10:00 pm. And nine urban areas in the province have implemented the power rationing policy.

Impact and analysis on the supply side

Jiangsu: Jiangsu has received notices of power rationing since September 16. SMM understood that copper processing enterprises in Changzhou and Taizhou began to suspend production from the Mid-Autumn Festival and will remain shut until the end of September; after the holiday, Yixing and Nanjing also received notices of power rationing. Therefore, copper rod companies has ceased production.

Shandong: SMM has received feedback from companies since September 21 that many areas in Shandong are banned from production from 4-12 pm.

Guangdong: Industrial users across cities and counties in the Pearl River Delta region, like Guangzhou, Shenzhen, Dongguan, Foshan, Zhongshan, Qingyuan, Zhaoqing, Zhuhai and even Shantou as well as Jieyang, have undergone the power rationing since September 16. Most copper companies have been notified to implement the 4-on 3-off shift schedule. And several areas have gone so far as to operate 1-on 6-off. Specifically, all production and operational power supply will be cut off from 8:00 am to 11:00 pm.

Zhejiang: Since September 26, Taizhou has started to implement the off-peak production schedule. Except for the top 100 enterprises, most of the companies implemented the schedule. The specific time is from 6:00 pm to 7:00 am, which will remain effective for a week.

Impact and analysis on downstream operating rate

Wire and cable: Many provinces and cities have received notices of power rationing due to the recent policy of dual control on energy consumption. As far as we know, the wire and cable industry has been affected after the Mid-Autumn Festival holidays. Small and medium-sized cable companies in Yixing city of Jiangsu have experienced intermittent power outages and production restrictions, and cable companies in Guangdong are required to shut for up to three days every week. Moreover, the power rationing has led to shutdown at PVC chemical companies. This resulted in supply tightness and high prices of insulating materials at cable companies, lowering output.

Enamelled wire: The enamelled wire sector was also affected by the power rationing policy, which mainly affected enterprises in Guangdong. The power rationing in Guangdong varies across regions. Foshan and Zhongshan are required to halt production for at least 2-3 days per week. The enamelled wire industry is a major electricity consumer. Except for a few large tax-paying companies, most companies have reported that they are currently experiencing output cuts caused by power rationing. But on the other hand, most companies have not reached full capacity amid poor orders. Therefore, the current output cut is still controllable according to some companies, except for those that will be delivering cargoes in the near term. The production suspension at downstream buyers has affected demand for enamelled wire. Zhejiang has also begun to implement the power rationing, forcing downstream motor plants to stop production. And this has further affected enamelled wire companies

Copper rod: Affected by the dual control policy; most copper rod factories in Changzhou of Jiangsu have stopped production during the Mid-Autumn Festival holidays due to the power rationing notice issued before the holidays, and the suspension will last at least until the end of the month; the copper rod companies in Yixing were also affected by the power rationing policy and have stopped production since September 23. Some copper rod companies will stop production before the National Day holidays; output at the copper rod factories in Guangdong also declined due to the power rationing. The operating rate of copper rod companies dropped significantly due to power rationing. However, copper rod did not see a supply shortage due to the weaker downstream demand amid simultaneous power rationing.

Impact on end-users and feedback from companies

An enamelled wire company in Jiangxi: Among the downstream clients, many small and medium-sized motor factories in Zhejiang are undergoing power rationing and are only allowed to produce at night. This has led to a weakening of the demand for enamelled wires and a noticeable slowdown in delivery speed, which has a relatively large impact.

An enamelled wire company in Shenzhen: The company had not operated at full capacity before the implementation of the power rationing measures due to the poor orders. Currently, it is implementing 5-on 2-off schedules, which has limited impact on deliveries for orders. The power rationing has increased the cost of production, though.

The impact on copper price trends and market outlook analysis

On the whole, the impact of power rationing on the copper industry chain is the most significant on the demand side. But we shall be wary of the subsequent possible impact on some smelters in the south. If some smelters in the south continue to undergo power rationing, it is expected that the supply side will also be affected significantly. From a fundamental point of view, domestic inventories will remain at a low should there be no large inflows of imported copper, which will provide strong support for the copper prices.

Price gains during the year

LME and SHFE copper prices rose about 20%

SMM survey: the impact of the power rationing on the aluminium industry chain

Regions that implement power rationing

Yunnan, Inner Mongolia, Liaoning, Jiangsu, Guangdong

Capacity proportion

7.5%

Brief introduction of power rationing

Energy consumption “dual controls”: Recently, the National Development and Reform Commission specifically mentioned during its regular press conference that the energy consumption intensity across the nine provinces (Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi, and Jiangsu) increased on a year-on-year (YoY) basis in H1.  In addition, the reduction rates of the energy consumption intensity in 10 other provinces have not met the requirements. Therefore, China is facing big challenges in its energy conservation efforts.

Analysis of the impact on the supply side

Due to the power shortages and energy consumption “dual controls, some aluminium smelters in Yunnan, Inner Mongolia and Liaoning reduced their output further in late September. So far in September, the newly occurred production cuts and planned production cuts in the three regions are as follows: nearly 500,000 mt/year in Yunnan, close to 50,000 mt/year in Liaoning, and approximately 240,000 mt/year in west Inner Mongolia, bringing the total reductions in the three regions to 790,000 mt/year. SMM will continue to monitor the impact of the power rationing and production restrictions on the entire industry chain.

So far this year, the capacity reductions are approaching 3 million mt, accounting for about 7.5% of the peak operating capacity.

Analysis of the impact on the downstream operating rates

Aluminium plate/sheet and strip: Many small and medium-sized producers in Guangdong, Jiangsu and Guangxi have been forced to cut or halt production due to the power rationing, dragging down the overall operating rates in the industry. However, the companies in our survey sample were affected by the power rationing and maintained normal production. The conversion margins continued to rise in line with the sharp increase of magnesium, manganese and silicon prices. The operating rates at the large producers are expected to remain stable next week on strong downstream demand.

Aluminium foil: The power rationing in Jiangsu escalated this week, with many aluminium foil factories in Jiangyin being forced to shut down. However, the large producers in Jiangsu rarely cut their production.  Many producers reported a sharp decline in orders on hand.

Aluminium exrusion: The aluminium extruders in Foshan, Zhongshan and Zhaoqing said that the power rationing has tightened, with the number of days that the local producers are allowed to be in operations each week gradually dwindling from 6 to 3. Starting from September 16th, the Guangdong Power Grid has halted power supply to the local producers for five out of seven days per week. Starting from September 22, the smaller industrial enterprises in Guangdong have been subject to six days of shutdowns per week. The tightening power rationing, coupled with the on-going environmental protection inspections and high aluminium prices, have had a negative impact on the production and orders of the aluminium extruders. The SMM survey found that most of the producers in Guangdong have implemented the production reductions, but a majority of the large and medium-sized enterprises have maintained their operating rates above 50%. Jiangsu announced on September 14 that it has received an emergency notice from the central government to impose power rationing for 15 days, effective from the midnight on September 15. According to the notice, the industrial power will be suspended, the household power will be maintained, and safe power use will be ensured. The facilities will undergo maintenance for half a month, the office air conditioning will be cut off, and street light control will be halved. Most of the companies have received the notifications, but they did not strictly comply with the requirements as of September 16. The provincial inspection team carried out inspections door to door to ensure each company is in strict compliance with the policies.  Some companies said that their offices were out of power, leaving their lighting and computers paralysed. Many companies are concerned that they will be unable to deliver orders on time and lose customers.

Analysis of the impact on the prices

In the short term, the production restrictions at the aluminium smelters are still expanding, and the duration of shutdowns is relatively long. The period of closures at the aluminium processing companies in Jiangsu and Guangdong is relatively short, hurting the local aluminium ingot consumption. The aluminium ingot social inventories rose by 29,000 mt from last Thursday to 818,000 mt this week, and are likely to grow further before the National Day due to weakening downstream purchases. Many longs will withdraw from the market due to expectations of further inventory growth and risk aversion sentiment ahead of the 7-day holiday, which will weigh down aluminium prices. However, the market should be aware that the impact of the aluminium capacity cuts has not been fully reflected. The aluminium supply will remain tight as more output will be lost.

Price fluctuations in 2021

The SMM spot aluminium prices soared 47.1%.

The impact of power rationing on the lead industry chain

Regions

Anhui, Jiangsu, Hunan, and some areas in Guangdong

Power rationing policy

Jiangsu required all companies to halt production for maintenance from 0:00 on September 16 to 24:00 on September 30. The companies should adopt one production schedule from the three stipulated plans: operating only 4 days in one week, operating only 6 days from September 16 to September 30, or reducing production by 60%.

The impact on the supply side

The production of secondary lead was affected in Anhui, Jiangsu, and Guangdong.

One smelter in Jiangsu was impacted, of which the production is estimated to be reduced by 3,000-4,000 mt during the one-week production restriction in September.

One smelter was affected in Guangdong, but the output reduction was slight as it only halted production for one day every week.

The smelters in Anhui were required to reduce production by 20%, but the production cut has not been implemented as the facilities in most plants cannot be partly shut down due to the equipment and process limitations. Only the small smelters have stopped production due to the environmental protection inspections, so the current impact of power rationing on the secondary lead production is limited. The production cut has been mainly caused by the weak market.

Most refined lead smelters in Hunan reduced production due to the power rationing, and the spot premiums stood high this week. The refined lead smelters in Guangdong slightly cut the weekly production by 10%.

The impact on the demand side

The power rationing was intensified, especially in Jiangsu, Guangdong, and Anhui, where the power consumption was required to be reduced by 20-40%. Most companies started to lower the operating rates since September 23. Hence the operating rates of the lead-acid battery plants fell significantly. The power rationing will extend until September 30, so the operating rates are expected to decline further this week.

The impact on lead prices and the price forecast

The supply of lead ingot was limited due to the intensifying power rationing, which dragged down the expectations of the inventory increase of lead ingots. The demand of the lead ingots was also affected by the production curtailment, so the restocking level is expected to decline before the National day holiday. The primary lead and secondary lead smelters are likely to deliver goods at premiums. The secondary lead prices will remain higher than the primary lead prices in some regions. Holders actively shipped goods before the National Day Holiday, and some quotations stood at discounts. The downstream users are expected to restock raw materials before the holiday this week, but the restocking level may fall due to the production curtailment amid the power rationing in Jiangsu and other regions.

Price change in 2021

The most traded SHFE lead contract has fallen by about 2% from the beginning of the year, and LME lead has risen by about 8%.

SMM survey: The impact of power rationing on zinc industry chain

The impacted regions

Yunnan, Hunan, Guangdong, Jiangsu, Zhejiang, Tianjin, Hebei, Shandong

Power rationing summary

Jiangsu: According to dual control plan of Xinghua City, all industrial enterprises must suspend production before 24:00 on September 16 and the power outage period will be extended until 24:00 on October 8.

Tianjin: Coal-fired power supply tightened amid the maintenance of generator sets in north China. There is a power gap in the Beijing-Tianjin-Tangshan power grid. According to the requirement of the Tianjin Industrial and Information Technology Bureau, local area has started orderly power consumption. Companies are required to suspend production from 9:00 to 13:00 and 14:00 to 22:00 on September 23. Sudden power outages caused by insufficient power supply may occur at any time during the above-mentioned time period. Manufacturers need to make preparations in advance and arrange staggered production.

The impact and analysis on the supply end

Multiple smelters in Yunnan have received notices requiring them to cut production by about 20%-30% from September 19, which is likely to continue until the end of September or October.

In Hunan, some plants are required to cut 20% of output and others even cut 50% of output, which is expected to extend to the end of September. Some smelters that fail to be subject to power rationing said that they may reduce output in later stages. Zinc ingot output in Hunan is likely to decline 350-400 mt/day.

Zinc ingot output in September is expected to be flat from August of 508,900 mt.

The impact and analysis on the operating rates of downstream producers

The production at downstream plants in Jiangsu, Zhejiang, Tianjin, Hebei and Shandong has also been affected by power rationing, but the situation and the affected time of period in these regions was different. The downstream industry features over-dispersion, thus, the decline in consumption of zinc ingots cannot be quantised. And the inventory changes in the near futures becomes an indicator for observing the supply and demand under the background of power rationing.

Company voice

Raw material prices and difficulty in procurement increased, ramping up the overall production costs.

Zinc price trend and market outlook analysis

The supply and demand were subject to power rationing and the social inventory accumulated again. SMM expects that there will be a period of continuous accumulation around the National Day holiday due to power rationing and ample raw material stocks at downstream plants, which is likely to suppress zinc prices. The fourth batch of government stockpiles remains as the market focus. The inventory remains the indicator of the supply and demand. The most-traded SHFE contracts prices are expected to stand at 22,500-23,300 yuan/mt this week.

Price change

The most-traded SHFE contracts prices rose 10% while LME zinc increased about 12% from early 2021 until now.

SMM survey: the impact of power rationing on the tin industry chain

Regions under power rationing

Guangdong, Guangxi, Yunnan, Jiangsu, Zhejiang

Summary of power rationing policies

Jiangsu: From September 16 to 30, all companies are requested to reduce their production by “closing for 4 days in a week”, “closing for 8 days during the designated period” or “reducing the total production by 60%”.

Impact on the supply side and SMM analysis

The current round of power rationing has little impact on upstream smelters. A smelter in Guangxi has already reduced its output to a low level during the last round of power rationing in summer. Therefore, the actual impact of this round is insignificant, and the plant has gradually resumed production recently according to market news. The overall impact in Yunnan is insignificant. A factory in Hubei has suspended production for one month due to environmental protection.

Impact on downstream operating rates and SMM analysis

The recent power rationing in Guangdong and Jiangsu has had a greater impact on downstream solder and electronics factories, the largest source of demand. Many companies have continued to reduce their production due to problems such as high raw material prices and sluggish exports. And this round of power rationing has brought more difficulties to production.

Impacts on the terminal side and voice of companies

The electronics industry has been greatly affected by the power rationing. Photovoltaic companies have been gaining momentum recently, which worth market attention regarding their performance after the end of the power rationing.

Impact on the prices and SMM analysis

The increase in tin prices for more than half a year has had a significant impact on downstream companies. According to the latest survey results, the downstream solder companies that supply electronics factories failed to see increased production in the seasonal high in September and October. Although the demand from photovoltaic companies has made up of the sluggish demand from electronics companies to a certain extent, the follow-up sustainability will remain as the focus. Therefore, under the expectation of sufficient supply, the degree of recovery of demand after the end of power rationing in the future has become the key to the absolute trend of tin prices.

YTD price change

90%

SMM survey: the impact of power rationing on the steel industry chain

Regions under power rationing

Inner Mongolia, Guangdong, Guangxi, Jiangsu, Zhejiang, Anhui, Jiangxi, Shandong, Heilongjiang, Yunnan, Guizhou, Shanxi, Shaanxi, Liaoning, Sichuan, Hunan, Ningxia

Summary of power rationing policies

On August 31, Inner Mongolia issued a document stating that the power shortage is expected to continue until the end of the year. It is recommended that the industrial enterprises to use electricity in an orderly manner in August - December.

Guangdong Power Grid stated that it will require local plants to close for 5 days in a week, and operate off the peak of demand.

Guangxi has urged the local plants to strictly follow the requirements of dual control of energy consumption, and adopt the off-peak power consumption scheme. The local plants may operate in the night of the weekends to minimum the negative influences of power shortage.

Jiangsu has required local enterprises to limit production to varying degrees according to the Energy Consumption Dual Control Plan on September 19, 2021. Category A companies shall not consume more electricity than the same period last year; Category B companies shall reduce their power consumption by 10%; Category C companies shall take turns to operate; Category D companies shall cease all production.

As of September 27, some short-process and long-process enterprises in Zhejiang have all received production restriction notices. The production reduction plans of short-process steel mills are mainly concentrated on September 13 - 30.

In order to ensure the smooth operation of the power grids and reliable power supply, the orderly power utilisation plan will be officially initiated on September 22 in Anhui.

The control of energy consumption intensity in Jiangxi has failed to meet the national requirements. As such, the province will not approve any new energy and pollution-intensive projects except for those planned according to national strategy in order to ensure the completion of energy consumption control target for 2021.

Recently, Rizhao, Zaozhuang, and Zibo in Shandong Province have all adopted power rationing measures. In September, more steel mills in Shandong were restricted by power rationing and production reduction policies.

The National Development and Reform Commission (NDRC) issued the Emergency Notice on Doing a Good Job in Orderly Utilisation of Electricity, and market entities that refuse to implement the scheme will be removed of their qualifications for market transactions. Enterprises whose electricity consumption exceeds quota without authorization shall be ordered to make rectifications, and those that cause serious impacts due to non-implementation of orderly electricity use measures shall be held accountable. Some steel companies stated that they have received such notices of power rationing, and some steel plants have taken measures to reduce production, which mainly affects the output of building materials.

Yunnan has intensified the control over power consumption across the province. Yunnan required the steel industry to adjust the production schedules on the basis of ensuring the completion of the crude steel production reduction target in 2021, by postpone some of the production plans in September to November-December.

Shanxi will guide the enterprises to operate off the peak of demand. Companies that adopts off-peak power consumption scheme will apply time-of-use electricity prices in accordance with the relevant rules of the spot market to reduce electricity costs. Local blast furnace mills have reduced the use of public power supply by using self-generated electricity, thus the impact on output will be limited.

On September 23, the orderly consumption of electricity was implemented in Liaoning.

The State Grid Hunan Electric Power stated that in accordance with the requirements of "limited insurance", it will give priority to power supply to people's livelihood, public utilities and public welfare service places. It is recommended that the power-consuming facilities such as lighting engineering, landscape lighting, and large commercial advertising screens be shut down during special period.

Impact on the supply side and SMM analysis

For the steel industry, the specific timeline of energy consumption control and power rationing policies is not clear in many places, with most of them temporarily being set at the end of September. Some provinces, including Jiangsu and Zhejiang, have issued phased measures, which have significantly pulled down the output. For example, the output in Jiangsu has dropped by more than 80,000 mt/day, especially rebar.

Impact on downstream operating rates and SMM analysis

Power rationing has also impacted the downstream processing and manufacturing sectors.

Impact on steel prices and SMM analysis

As the production reduction policies continued to intensify, the follow-up supply will be declining. Currently, the downstream restocking demand is likely to be robust in the last trading week ahead of the National Day holiday, thus the near-term inventory will continued to fall, support steel prices.

YTD price change

The prices have surged by nearly 20% since the beginning of this year.

SMM survey: the impact of power rationing on the rare earth industry chain

Regions under power rationing

Hunan, Guangdong, Guangxi, Fujian, Jiangxi, Jiangsu, Inner Mongolia

Summary of power rationing policies

Hunan: Hunan will implement control over power intensity and power quantity for 24 hours a day from Sep. 24 - 30. 

Jiangsu: A town in Jiangsu has required all local plants to suspend production until October 8 according to the emergency notice regarding energy consumption control.

Guangxi: The People's Government of Guangxi issued a document on August 20, requiring all power-using industrial and commercial enterprises to use electricity in an orderly manner.

Impact on the supply side and SMM analysis

The rare-earth smelting and separation enterprises in Hunan have been in a state of suspension since September 24th. But the rare earth output in this region is small, thus the impact on the overall supply is expected to be minimal. Other provinces reported that they are basically unaffected. While some companies said that the prices of auxiliary materials have been on the rise due to power rationing.

Impact on downstream operating rates and SMM analysis

Jinli Permanent Magnet, a leading rare earth permanent magnet company, said that the company's current production and operation are all normal, with sufficient orders in hand and full capacity utilisation. Up to now, the company's production base in Ganzhou has not been suspended or restricted due to power rationing, and the projects in Baotou and Ningbo were not affected either, which have been progressing steadily in accordance with the schedule. Magnetic materials companies in Ningbo mostly stated that their production has not been affected.

Impact on the prices and SMM analysis

The price of praseodymium neodymium oxide is currently fluctuating at a high level around 595,000 yuan/mt. On the supply side, ores from Myanmar are still unable to enter China. While power rationing has increased the costs of auxiliary materials, and the tightness of raw materials has intensified as well. Meanwhile, the demand of medium and low-grade magnetic materials companies has been dropping. The rare earth prices are expected to remain high in the fourth quarter, with resistance at 650,000 yuan/mt and support at 590,000 yuan/mt.

YTD price change

The prices of praseodymium neodymium oxide has increased by 46% since the beginning of 2021.

SMM survey: the impact of power rationing on the silicon industry chain

Regions under power rationing

Yunnan, Fujian, Sichuan, Hunan and other places

Summary of power rationing policies

Dehong, Yunnan issued a document on September 25, requiring 29 local silicon plants to suspend operation until September 26, and the follow-up energy control measures will be subject to the actual situations.

The Ministry of Industry and Information Technology of Fujian Province issued a notice, requiring 7 silicon plants to suspend production with varying periods from September 28 to October 16, reducing the power utilisation by 109,600 kWh. Another production area, Longyan, has urged 4 local silicon producers to reduce production in Sep. 28 - 30 and Oct. 4 - 7.

Impact on the supply side and SMM analysis

Yunnan: Silicon plants in Dehong will suspended production from September 20 to September 25 due to power rationing. The follow-up policy is still unclear. Some furnaces in Baoshan will be shut down. It is expected that the output affected in September will reach 10,000 mt.

Sichuan: The silicon plants in Aba Prefecture suspended production due to excessive energy consumption, and other areas have experienced varying degrees of power rationing. It is expected that the output affected will be around 2,000 mt in September.

Hunan: The silicon plants will suspend production around September 24. It is estimated that the output affected will be about 1,600 mt in September. The time of resumption of production in the above-mentioned two places is unclear.

Fujian: The local silicon companies are mainly located in Sanming and Longyan. It is estimated that the total output affected in September and October will be around 5,000 mt.

Impact on downstream operating rates and SMM analysis

Most aluminium alloy enterprises in Jiangsu, Guangdong, and Zhejiang have reduced their production since mid-September.

The production affected by power rationing stood at 30 - 40% of the total. The demand for silicon has been greatly influenced amid surging prices of aluminium and weak supply and demand pattern.

Impact on the prices and SMM analysis

The resumption of production in Dehong Prefecture of Yunnan Province was earlier than the expectations of most upstream and downstream entities. Some traders sold silicon at a price way lower than the quotations of silicon plants amid sufficient spots, resulting in market disorders. The mid and long term contradiction of the silicon market lies in the influence of energy control over the demand and supply.

YTD price change

East China 553# silicon with oxygen has increased by 332% since the beginning of 2021.

SMM survey: The impact of power rationing on the manganese industry chain

Regions implementing power rationing

Inner Mongolia, Ningxia, Guangxi, Guizhou

Brief on power rationing

On September 23, the Ulanqab Power Grid issued the estimated shortages of the system and an early warning of orderly power consumption for September 23-27. The Ulanqab Power Grid expected the power shortages to stand at 8.89 million kWh, 7.49 million kWh, 4.39 million kWh, 7.09 million kWh and 6.09 million kWh, respectively, from September 23-27. Off-peak and orderly power consumption is required to be implemented with the quotas of 3.88 million kWh, 3.72 million kWh, 2.86 million kWh, 3.72 million kWh and 3.61 million kWh, respectively.

Impact and analysis on the supply side

The key producing areas of silico-manganese alloys, including Inner Mongolia, Ningxia, Guangxi and Guizhou, have been affected to different degrees by the power rationing and production restriction policy. The consumption of manganese ore was slow. The prices of manganese ore were relatively stable in the middle of the month. As the prices of downstream silico-manganese alloy continued to rise, the prices of manganese ore also climbed at the end of the month.

Impact and analysis on downstream operating rate

Affected by the continuous power rationing and production restriction, most manufacturers in Inner Mongolia have negotiated for a delay in the delivery to steel mills; the output in Ningxia, where the impact from the dual control of energy consumption is significant, was affected by 15-20% due to the power supply factor. Almost all the plants in Guangxi suspended production in September. The power rationing in Guizhou remains underway, except for an improvement in Xinyi. The current spot supply is tight, while downstream demand is relatively strong. If the current power rationing continues, major ferro-manganese alloy plants are unlikely to complete the outstanding orders for August and September until October.

Impact on end-users and feedback from companies

The insufficient output of silico-manganese has tightened the spot supply. The bidding solicitation prices of steel mills has increased significantly compared with the previous month.

The impact on price trends and market outlook analysis

Although major steel mills were also reducing production in September, the decline in manganese alloy output was more than that of steel mills. SMM believes that the prices of silico-manganese will continue to climb to new highs at the end of September and in October if the power rationing in the main production areas fails to improve.

Price gains during the year

The prices of 65/17 silico-manganese alloy in Inner Mongolia have risen by 70.59% since the beginning of the year.

The impact of power rationing on the magnesium industry chain

Regions

Shaanxi

Capacity being affected

60%

Power rationing policy

The government of Fugu County in Shaanxi Province issued the "Letter on Requesting the Suspension of Power Supply to Fugu County’s First Batch of Key Energy Consumption Enterprises under Dual Control” on September 19, requesting Yulin Power Supply Bureau to suspend power supply to local magnesium companies.

The impact on the supply side

According to SMM statistics, more than 60% of China’s magnesium ingots are produced in Shaanxi Province. This round of production restrictions will break the supply and demand balance of magnesium ingot. The output of China’s magnesium is expected to decline to 55,000 mt in September.

The impact on the demand side

The end users of the magnesium alloys were strongly resistant to the sharp rise of the magnesium prices, as the costs for the magnesium alloys in some die-casting products for cars rose by 20%. The magnesium alloy sales were stagnated, and some end users were considering about substitutes. At the same time, some titanium sponge enterprises were greatly affected. The semi-process titanium sponge plants mainly apply externally sourced magnesium ingots, and the rapid rise in magnesium prices has led to a significant increase in production costs. Meanwhile, the prices of titanium sponge were suppressed by the weak demand, causing serious losses in the semi-process titanium plants.

The impact on magnesium prices and the price forecast

The ignition time of the major plants in Fugu is uncertain. However, the panic caused by the production suspension in the major production areas has been digested by the market, and the upstream and downstream industries have returned to the wait-and-see stance near the production resumption. The overall transaction is sluggish. The supply and demand weaken simultaneously in the market, and the magnesium prices are expected to stabilise amid the lower stocks of traders. SMM will continue to follow the work resumption in the major magnesium production areas.

Price change in 2021

The prices of the magnesium ingots (Mg 99.90%) in Fugu have risen by about 297% from the beginning of the year.

SMM survey: The impact of power rationing on chromium industry chain

The impacted regions

Guangxi, Inner Mongolia, Guizhou, Hunan and surrounding regions

Power rationing summary

Guangxi: Guangxi Industrial and Information Technology Bureau released the notice on strengthening energy-saving dispatching in high-energy-consuming industries. The notice stated that production restrictions at high-energy-consuming enterprises, including aluminium, alumina, steel, ferroalloy, cement, lime, and building ceramics, will commence in September.

The impact and analysis on the supply end

The main producing areas of high-carbon ferrochrome, including Guangxi, Guizhou, and Inner Mongolia, have seen power rationing. The consumption of chromium ore has declined. In addition, the raw material inventory at ferrochrome producers is abundant in the previous period, and production restrictions are expected to continue. High-carbon ferrochrome plants reduced restocking volume. Nationwide chrome ore port inventory increased 6.89% or 236,000 mt from early August.

The impact and analysis on the operating rates of downstream producers

High-carbon ferrochrome output declined sharply on the month in July and August. The output stood at 412,400 mt and 485,200 mt respectively in July and August, down 27.2% and 5.05% MoM. All of the producers in Guangxi have suspended production in September. The power rationing in Inner Mongolia, Guizhou and Hunan intensified. The output is expected to be less than 400,000 mt in September.

The impact on end-producers and company voice

The output of ferrochrome was insufficient, and the early orders placed by mills have not been completed. The price of high-carbon ferrochrome trended higher, ramping up the production costs at stainless steel mills; the output at stainless steel mills is expected to decline due to the power rationing. Besides, the raw material prices of ferrochrome and ferronickel increased, pushing up steel prices. The profit profile of stainless steel was not significantly affected.

Price trend and market outlook analysis

Approaching the bidding of steel mills, the power rationing and the dual control policies continue, ferrochrome production is unlikely to return to normal, and high-carbon ferrochrome output will find it difficult to increase. Ferrochrome prices have increased recently, but downstream stainless steel mills also reduced output. Weak supply and demand suppressed the upward room for ferrochrome prices.

Price change

The high-carbon ferrochrome prices increased 72.22% from early 2021 until now in Inner Mongolia.

SMM survey: the impact of the power rationing on the titanium industry chain

Regions that implement power rationing

Guangxi

Brief introduction of power rationing

Guangxi: The Guangxi Power Grid issued a notice of off-peak power use, which requires a reduction of 3 million kwh of electricity. The electricity in Baise, Laibin and Nanning will be reduced by 500,000 kwh, 300,000 kwh and 360,000 kwh respectively.

Analysis of the impact on the supply side

According to the local titanium dioxide factories in Guangxi, this round of production reduction will last for one month. Depending on their scale, the local titanium dioxide factories will slash production by 30-50%, which is estimated to affect a total of 14,000 mt of output. According to SMM data, the output of titanium dioxide in China stood at 297,500 mt in July, a decrease of 5.47% month-on-month and 0.82% year-on-year. Assuming that the output in August was flat from that in July, the output loss from the power rationing will account for 4.76% of the output in August, and the impact is limited.

Analysis of the impact on the prices

As the anatase titanium dioxide producers are concentrated in Guangxi, this round of power rationing will have a significant impact on the local supply, and the quotation range for anatase titanium dioxide is expected to narrow further.

Price fluctuations in 2021

The prices of anatase titanium dioxide have increased by 59% since February.

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For queries, please contact Frank LIU at liuxiaolei@smm.cn

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