SHANGHAI, November 29 (SMM) –
As Yunnan Province entered the dry season in early November, the power supply became tense, and local industrial electricity users reduced production to varying degrees, among which local aluminum smelters were subject to energy consumption management and production cuts during the dry season in the winter of 2023. As of now, four local aluminum smelters have basically completed the production reduction.
A total production capacity of about 1.17 million mt has been cut, which is basically in line with the requirements at the beginning of the month, without major adjustments. The determination of aluminum production reduction in Yunnan Province this winter is slightly different from previous years. In the past, smelters were basically required to reduce the same amount of capacity. However, considering smelters’ aluminum alloying ratio, the local government and the power department tried to ensure the supply of aluminum liquid to downstream aluminium processing companies this winter. Hence, smelters with a higher proportion of ingots are subject to bigger production cuts, with reduction ranging from 10% to 40%. This new approach of production reduction will undoubtedly promote the extension of the local aluminum industry chain in Yunnan Province. According to SMM, in Yunnan Province, aluminum’s total operating capacity in October was about 5.65 million mt, and the aluminum-liquid alloying ratio was about 61%. After completing the production reduction, companies’ aluminum-liquid alloying ratio is expected to increase to about 77%, and the monthly aluminum ingot production affected is about 97,500 mt.
SMM brief review: In recent years, aluminum production reduction caused by tight power supply in Yunnan Province during the dry season have occurred repeatedly. Moreover, in the transition period from the dry season to the wet season in the past two years, aluminum companies experienced two rounds of production reduction. Given tight power supply, there are many rumors in the market that aluminum companies may once again face a second round of production cuts this winter. SMM surveyed many local aluminum smelters, who reported that they have not received notice on the second round of production reduction. In the short term, they may mainly maintain the current operation. Let’s make a bold prediction based on power supply and demand. Currently, Yunnan’s aluminum operating production capacity has dropped to around 4.48 million mt, an increase of about 11% YoY. In the winter of 2021-2022, electricity consumption by aluminium industry in Yunnan Province accounted for about 18% of the province's total power generation. According to the proportion above, during the transition period from the dry season to the sub-wet season (from December 2023 to May 2024), in order to maintain the current aluminum operating production capacity of 4.48 million mt in Yunnan Province, power generation needs to increase over 15% YoY. Whether such a high growth rate can be achieved is in great doubt. According to the latest data released by Yunnan Province, in October, Yunnan's industrial power generation above designated size was 40.191 billion kWh, an increase of 17.2%. However, no industrial power cuts occurred in Yunnan in October thanks to improved water supply. The current water level in Yunnan's mainstream water stations is slightly higher YoY. Hydropower generation may maintain YoY growth in the short term, while since the dry season spans a large period, and from January to February each year is the peak and valley time period of hydropower generation in Yunnan Province. The conditions above make power supply unpredictable in the future. However, wind, photovoltaic and thermal power generation in Yunnan Province significantly increased YoY in 2023. It is expected that the power supply may increase by over 10% during the transition period from dry to wet season this year and next, thereby easing expectation for local industrial power shortages. SMM will follow up on the power supply and demand in Yunnan.