Zinc Smelters in Guangxi Province Cut Production to Meet Energy Targets

SHANGHAI, Sept. 19 (SMM) -- The Guangxi provincial government also implemented power restriction policies, with local zinc smelters the major focus in efforts to meet energy savings and emissions reduction goals.

Guangxi is one region where energy consumption per unit of GDP has actually increased instead of declining following the implementation of energy savings and emission reductions policy. The Guangxi government recently took more stringent measures, including power restrictions, to achieve the energy-conservation targets for the 11th Five-Year Plan. Liuzhou city, where many zinc smelters are located, issued a notice regarding power use standards for September 2010 and stressed that the Power Supply Bureau should strictly apply these standards. The Liuzhou government will focus on enterprises included in the list of high-energy-consuming enterprises within Guangxi province. Meanwhile, the Liuzhou government will also continue to eliminate inefficient capacity, phase out smaller smelters and ferroalloy factories that are inconsistent with national industry policy and that were previously ordered by China's Central Government to be eliminated.           

Zinc smelters in Guangxi province are heavily affected by power limits. Four zinc smelters are among the high-energy-consuming enterprises in Guangxi provinces, which include Liuzhou Longcheng Chemical's General Plant, Nandan Nanfang Non-ferrous Metals Smelting Company, Hechi Jinhe Metallurgy Company's Renmin plant, and Liuzhou China Tin Group's Laibin smelter. Other zinc smelters not included in the list are also cutting production due to power restrictions.

SMM sources report the Guangxi provincial government is implementing electricity restrictions in three ways. First, the government issues energy-saving standards for zinc smelters, which then require the smelters to cut production to comply with the standards. Second, the Power Supply Bureau is ordering compulsory power cuts or requiring smelters to shut off electricity for industrial use, leaving only power for lighting. Third, the government raises electricity prices for industrial use, limits power use by setting quotas for power, cutting power supply if use at smelters exceeds the quotas. Hechi Nanfang Non-ferrous Metal Smelt Company said electricity prices for industrial use in Hechi city rose by RMB 0.1/kwh. Liuzhou China Tin Group reported electricity prices for industrial use in Liuzhou city rose by RMB 0.1/kwh, and that the Group's quota of power is only 1/3 needed for normal production.   

Strict power restriction policies during September have greatly impacted operations at zinc smelters. SMM contacted Guangxi Tanghan Zinc and Indium Company and found at least 80% of zinc smelters in Guangxi province will stop producing refined zinc, and that electricity supply for industrial use would be shut down. Whether or not these smelters can resume production in October will depend on how much the Guangxi government can conserve energy and cut emissions.  If energy consumption in the province remains high, these smelters will not likely resume production. 

Guangxi province's refined zinc output was 42,969 mt during July, accounting for 10.7% of China's total output. Total output of refined zinc was 287,537 mt from January to July, accounting for 9.1% of China's total output for that period. SMM predicts refined zinc output in Guangxi province will fall significantly on a monthly basis following the implementation of the latest power restrictions, and especially during 4Q when market demand will grow, and possibly lower zinc output will reduce market supply in south China. However, SMM believes zinc smelters are now holding some stocks which will help offset cuts in production. In this context, zinc prices in 4Q will not experience significant fluctuations despite of the current restrictive energy policies. 

Other provinces and regions will also begin to restrict electricity supply since deadline for reaching energy saving and emission reduction targets for the 11th Five-Year Plan is approaching.  In this context, any impact on zinc prices in the long term will depend on local government moves to restrict electricity supply over the next several months.

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