SMM Exclusive: Tracking the Impacts of Power Rationing on Metals Industry amid High Temperatures

SHANGHAI, Aug 16 (SMM) - 

Copper:

Full production schedules promoted the operating rate of refined copper rod producers to rise further, but the potential impact of power rationing should be paid attention to

The enduring high temperatures in east China has caused the power load to jump rapidly, hence power curtailment measures have been introduced in many places. Judging from SMM survey so far, the power restriction had limited impacts on downstream enamelled wire and cable producers and the demand for copper rods was barely damaged. In terms of refined copper rods, some enterprises in Anhui and Jiangsu were affected by power restrictions. One enterprise in SMM survey sample said that it received a notice of power rationing last Thursday night, and shut the furnaces down the next day for heat preservation. The production suspension was expected to last three days.

SMM survey suggests a limited number of copper rod plants have been forced to reduce or halt the production due to power rationing. In addition, this round of power rationing is induced by hot weather, thus its impact is expected to short-lived, though the number of enterprises restricted by power rationing may be increasing subsequently. According to SMM estimation, the actual impact of power curtailment on production will be less severe than last year. SMM will stay focused on the potential negative impact of the power curtailment policy on the operating rate of the copper rod industry.

Copper-zinc alloy billet companies in Taizhou forced to cut the production significantly following power rationing

Taizhou in Zhejiang province is home to copper-zinc alloy billet enterprises, many of whom have reported substantial cuts production due to power rationing. As a result, the delivery date of many enterprises was put off, and the output was likely to be directly affected. In addition, August is the traditional off-season of the copper-zinc alloy industry. The real estate market and downstream exports are still sluggish, thus many copper-zinc alloy billet companies are still pessimistic about the future demand, and the consumption will hardly in the short term.

Operating rates of copper tube producers remained basically flat amid power curtailment, but attention shall be paid to the potential negative consequence

Recently, the power rationing policy has taken effect in many places in east China. Although the policy has not endangered the operating rates of copper tube producers significantly, it is still necessary to pay attention to the potential negative impact of the policy in the long term.

Power curtailment policy has limited impacts on enamelled wire enterprises, and the use of old and energy-consuming enamelling machines have been reduced

Recently, power curtailment has been implemented in Jiangsu and Zhejiang provinces. In view of SMM survey, the power curtailment policy has limited impacts on enamelled wire enterprises so far. On the one hand, this power rationing mainly requires to control the total power consumption, so the enamelled wire plants could easily meet the demand by reducing the use of old and energy-consuming enamelling machines. On the other hand, plants reschedule the operation of the wire-drawing machines in order ensure continuous operation of the enamelling machine without breaking the power limit. Therefore, the enamelled wire enterprises are still under normal operation.

Lithium foil production jumped 11.46% in July, and the increase in August is expected to be restricted by power rationing

The extending high temperatures in August has led to the return of the power rationing policy in Jiangsu, Zhejiang and Anhui provinces, which is expected to last for about two weeks. As the power crackdown has strengthened since August 10, the weekly capacity utilisation rate of some copper foil enterprises fell by 30%, which dragged down the operating rates of the industry.

Power cuts in many places triggered concerns about the supply of copper cathode

On August 10, according to SMM survey, the power cuts have weighed on the operating rates of copper smelters in Zhejiang and Anhui provinces. At the same time, the tight supply of copper scrap has also exerted potential production pressure on some smelters. In addition, the prices of sulphuric acid in many places has fallen sharply recently, and the market is worried about the increasing inventory of sulphuric acid. It is expected that the domestic production of copper cathode in August will face a downward pressure. On the consumer side, the power curtailment has affected the operating rates in refined copper rod, plate/sheet and strip, copper foil, copper rod and other industries to a certain extent. However, since the power curtailment is at a preliminary stage, its specific impact on copper consumption still remains to be seen.

What are the implications of power rationing policy on the copper industry chain?

Beset with soaring temperatures, many regions in east China recently issued orange heat alert, and the power load rose sharply. On August 6, the Zhejiang Provincial Development and Reform Commission issued a notice of consuming electricity of 12.50 million kilowatts in an orderly manner since August 8. The amount of electricity will be adjusted based on the latest development. Subsequently, enterprises in Anhui, Jiangsu and other provinces also received notices of power curtailment one after another. What are the implications of this round of power rationing on the copper industry chain?

SMM survey shows that the smelters were the first to bear the blunt, which were forced to reduce the production. Specifically, smelters in Zhejiang and Anhui are currently reducing the production, which will weigh on the expected growth rate of copper cathode production in August. It is learned that the production of blister copper and refined copper of a copper smelter in Zhejiang was greatly affected, which is estimated to decline by more than 15%. (Note: the smelter has a smelting capacity of 300,000 mt/year and a refining capacity of 470,000 mt/year. In particular, its refining capacity accounts for 4% of China’s total refining capacity.) At the same time, smelters in Tongling also reduced the operating rate of copper cathode production by 25-40% on daily basis from August 10, which is planned to last for a week. As for how long the production cut will endure and how much the reduction will be, it depends on the actual power shortage. (Note: the copper smelters in Tongling, Anhui province has a smelting capacity of 1.03 million mt/year and a refining capacity of 1.18 million mt/year. In particular, the refining capacity accounts for about 10% of the total domestic capacity

Aluminium:

Zhongfu Industrial's two aluminium smelters expected to cut production for a week amid power shortage in Sichuan

On the evening of August 14, Zhongfu Industrial announced that its subsidiary Guangyuan Linfeng Aluminium Electricity Co., Ltd. and its shareholding subsidiary Guangyuan Zhongfu High Precision Aluminium Co., Ltd. received a notice from the State Grid Sichuan Electric Power Company that due to extreme hot weather and tight power supply, part of the production capacity of the two enterprises would be suspended for one week from August 14, 2022. Specifically, Guangyuan Linfeng is estimated to lose 7,300 mt of production, which will lead to a drop of about 55 million yuan in the net profit attributable to shareholders of listed companies. Guangyuan Zhongfu is expecting a cut of 5,600 mt in aluminium production, reducing the net profit attributable to shareholders of listed company by about 23 million yuan.

Some lead-acid battery companies required to adopt staggered production during the peak season of power consumption in summer

The recent enduring high temperatures caused a sharp rise in electricity consumption of residents. In order to ensure the power supply relating to people's livelihood, on August 12, industrial power rationing policy was introduced in Anhui, Jiangsu, and Zhejiang provinces. Among them, enterprises in Anhui were hit most, particularly the secondary lead smelters and some battery enterprises. The enterprises are required to adopt staggered production, with daily power use limit ranging from 2 to 12 hours.

Operating rates of leading aluminium processing enterprises rose slightly last week, and attention shall be paid to the impact of power curtailment on downstream enterprises

According to SMM survey, many places in east China have adopted staggered power use since August 11 due to the high temperatures, but its impact on the aluminium processing sector was not palpable as most aluminium processing enterprises did not receive the notice and the operating rates of some aluminium processing were already at a low level. On the whole, the operating rate of aluminium processing enterprises will remain stable in the short term. SMM will continue to track the impact of power cuts as well as the pandemic on enterprise production.

Operating rates of secondary aluminium plants in August might be curbed due to the lack of new orders and power restriction

Since August, the operating rates of downstream enterprises in northeast and southwest China has been lowered due to summer break and staggered power consumption, which weighed on the production of local alloy factories to varying degrees. Considering that the supply of raw materials is tight, the average operating rate of secondary aluminium producers is expected to remain flat or slightly slip in August.

Aluminium plate/sheet, strip and foil producers had mixed sentiments towards power rationing amid high temperatures

According to SMM survey, most aluminium plate/sheet, strip and foil enterprises in Jiangsu and Zhejiang had not received notices related to power curtailment as of August 10. In addition, these enterprises said that the operating rates of the manufacturing industry have remained at a low level this year, thus their demand for electricity was relatively small. Therefore, most enterprises were optimistic about power rationing, who believed that the power curtailment would only cover a limited scope and last for a short period of time.

Lead:

Production of secondary lead smelters in Anhui was affected by power curtailment

The recent high temperatures, couple with peak season of electricity use, weighted heavily on the power load in some areas of Anhui province. Therefore since August 4, some secondary refined lead smelters in Anhui have received the notice of power curtailment and are forced to cut the production. Specifically, smelting enterprises such as Anhui Tianchang, Chilwee, Narada Huabo, Camel Anhui and Huaxin are subject to a daily power limit ranging from 3 to 12, resulting in a total reduction of about 1,000 mt/day in the secondary refined lead production. Altogether, a monthly production capacity of about 125,000 mt are affected.

Secondary lead: SHFE lead prices pulled back sharply, and the impact of power cuts in some areas of Anhui expanded

According to SMM research, the impact of power curtailment in some areas of Anhui has expanded when some smelters were forced to cut the power for the whole day on August 10. On that day, the secondary refined lead was not available for shipments and quotations were also suspended. The purchasing interest of downstream enterprises recovered slightly compared with the day before, but the overall willingness remained low.

Power rationing in Anhui may once again disrupt the refined lead supply

On August 9, another notice of power curtailment was issued in Anhui due to enduring high temperatures. According to SMM survey, some secondary lead smelters were slightly affected under the daily power use limit ranging from 2 to 12 hours. SMM will stay focused on the follow-up influence.

In terms of consumption, the operating rates of battery companies remained high, the downstream traders purchased on demand, and the consumption of lead ingots improved steadily. However, there are also possibilities that downstream battery companies might reduce the production slightly due to power restrictions.

Social Inventory of Lead Ingots Increased Slightly amid the Approaching Delivery of SHFE 2208 Contract and the Power Rationing

According to SMM research, as of August 8, due to the high temperature, some provinces restricted the industrial power consumption to ensure the electricity consumption of residents. For example, Anhui government recently issued a power restriction notice, which affected the production of some lead smelters and lead-acid battery companies. The duration of power rationing ranged from 2-12 hours. Market should pay attention to the subsequent progress.

SHFE lead prices were high amid the power rationing in Anhui

According to SMM research, as of August 8, some enterprises in Anhui were affected by the power rationing policy and the daily output fell by 20%-40%. The discounts of secondary lead prices over SMM 1# lead ingot price narrowed to 200-150 yuan/mt. Secondary lead smelters mainly produced for the shipment in the form of long-term orders. Meanwhile, most downstream enterprises picked up goods as needed and were unwilling to purchase more.

Due to the power rationing in Anhui, the operating rates of secondary refined lead across four provinces fell slightly

According to SMM research, as of July 15, the operating rates across four provinces fell slightly because the output of secondary refined lead smelters declined by 20-25% amid the power rationing in Anhui. Meanwhile, some smelters in Henan lowered the output due to the low prices. In addition, the power rationing is expected to continue. Therefore, the operating rates may further decline.

Lead prices rebounded amid the cost support and power rationing

On July 12, due to the high temperature, Anhui issued notices of power rationing. Therefore, the supply may be hugely affected and lead prices may rebound in the follow-up.

Tin:

Smelters in Yunnan and Jiangxi were not affected by the power rationing and some smelters in Anhui were affected only slightly

On August 15, domestic tin smelters were under maintenance intensively since mid and late-June, mainly with a period of 30 days. Judging from the current progress of production resumption, smelters in Yunnan and Jiangxi provinces were not affected by the power rationing. Although some smelters in Anhui were affected in the early stage, the impact of total output was little as the capacity in Anhui accounts for a small proportion.

Stainless steel:

What’s the impact of high temperature and power rationing on the stainless steel industry?

Since July, due to the high temperature, the demand for electricity increased rapidly. According to SMM research, stainless steel plants and their downstream processing plants were more directly affected by the power rationing.

On the raw material side, most domestic refined nickel smelters are located in Gansu, Xinjiang and Jilin. The smelters are unlikely to suspend the production as these areas have not issued a clear notice of power rationing. Meanwhile, the main producing areas of high-carbon ferrochrome in Inner Mongolia, Shanxi and Qinghai have not received clear notice about power rationing. Therefore, it is expected that the output of high-carbon ferrochrome will not be affected.

Cobalt and lithium:

Prices of lithium carbonate rose slightly due to the power rationing while the prices of refined cobalt remained volatile as futures prices increased

As of August 13, the prices of lithium carbonate rose slightly. Due to the shortage of raw material, the operating rates were lower than expected. Meanwhile, amid the summer peak of electricity consumption, the power rationing policy is expected to continue until the end of the month. Therefore, the quotations of many lithium salt factories increased. On the demand side, the demand for electronics picked up slightly and many LFP producers continued to release the new capacity. Meanwhile, the terminal enterprises continued to resume the production and some enterprises had stronger restocking demand.

Ferrous metals:

Stainless steel prices fell for two consecutive days due to light demand, market pay attention to the power rationing

On August 9, the spot prices fell again, and the transactions were basically made on the rigid demand. Traders were unwilling to stockpile. At present, the impact of high temperature and power rationing on stainless steel plants was limited. It is still necessary to pay further attention to the implementation of power rationing policies in various places.

Power Rationing in Anhui Expanded and Electric Arc Furnaces were Totally Suspended

Affected by the high temperature, the power supply was tight in Anhui, and many places issued power rationing notices. As of August 12, all independent EAF equipment were suspended in Anhui. Some production lines of BF mills were also suspended. In addition, some steel markets also issued time-based power outage notices. At present, the power supply in Anhui was tight, and the power rationing may further expand.

Stainless steel scrap prices will continue to increase amid the tight supply

On August 12, domestic steel scrap prices rose, mainly because the demand increased after the BF mills resumed the production. However, on the supply side, the recent high temperature and compliance review, the supply of steel scrap was tight. Therefore, the steel scrap prices continued to increase. In the short term, blast furnaces may further resumed the production and the profits of electric arc furnaces are squeezed. It is expected that the demand for steel scrap will increase slightly.

Rebar prices will increase sharply amid the slow resumption of steel mills and the firm cost support

On August 12, according to SMM analysis, the spot and futures prices fluctuated, and the market views diverged. On the supply side, due to the influence of power rationing in many places, the production of some steel mills were affected to varying degrees. Meanwhile, due to the high raw material cost, the profits of steel mills were compressed again. On the demand side, due to the high temperature, and the terminal demand was week. In addition, the transactions were poor as futures prices of rebar remain volatile and the market views diverged. In the follow-up, with the increase of raw material prices, the cost support will be more firm. Due to the tight supply and slow resumption of steel mills amid the power rationing, the in-plant inventory will further decline.

Steel mills in east-China reduced he production significantly due to the power rationing, the operating rates of electric arc furnace fell slightly

On August 9, the spot prices of rebar remained volatile and steel scrap prices increase slightly. Therefore, the profits of EAF steel mills declined. Meanwhile, steel mills in some provinces were affected by the power rationing and the weekly operating rate fell slightly on the week.

Silicon:

What is the impact of tight power supply in Sichuan on the production of local industrial silicon companies?

Most industrial silicon factories in Sichuan Province are located in in Ya'an, Liangshan, Leshan, Aba, Panzhihua and other places. According to SMM research, on August 15, silicon factories in Ya'an, Leshan and Aba areas suspended the production for 24 hours in accordance with the notice. Whether the production will resume on time is uncertain. Silicon factories in Liangshan lowered the output.

Tongwei Co., Ltd. received a notice of power rationing, and the production of silicon materials and cells will be affected

A reporter from CLP learned that the company received a power rationing notice on August 14. Relevant staff said that the detailed power rationing plan has not determined yet, and the relevant local departments will make arrangements according to the degree of power shortage. The production of silicon materials and cells in Sichuan will be affected to a certain extent, but the specific extent needs to be assessed. If the impact is greater, a corresponding announcement will be made.

Silicon prices continue to rise amid the pandemic in Xinjiang and the hydropower supply shortage in Sichuan

According to SMM, the industrial silicon metal output stood at 318,900 mt in July, up 3.6% on the month and 17.5% on the year. The output totalled 1.9515 million mt in January to July, a year-on-year increase of 28.4%. Due to the pandemic in Xinjiang and the power rationing in Sichuan, the output in August is expected to decline on the month.

Photovoltaic:

Notice of sudden power cuts in Sichuan Province, local photovoltaic companies have shut down production

SMM learned that on August 14, the State Grid Sichuan Electric Power Company issued an urgent notice on expanding the implementation scope of the power rationing among industrial enterprises to ensure the civilian use. The notice mentioned that the industrial enterprises (including whitelisted key guarantee enterprises) in the province (except Panzhihua and Liangshan) will have to suspend the production (except for security loads). Once this policy is implemented, local silicon materials, silicon wafers, cells and other photovoltaic companies will suspend the production.

According to SMM, the serious power shortage was caused by the continuous local drought and high temperature. On the one hand, due to the drought and little rain since July, the water volume of local rivers declined hugely, and the power generation of some rivers decreased by 60% compared with the same period. On the other hand, the extremely high temperature greatly increased the residential electricity consumption. Therefore, the power supply was tight and in order to ensure civilian use, a strict power rationing policy is immediately implemented for industrial enterprises.

List of high temperature warnings

On August 15, Chongqing Meteorological Observatory continued to issue the high temperature red warning signal. It is expected that from August 15 to 17, the highest temperature in over 30 districts and counties will reach above 40°C.