[Al] Electricity Price Hike Will Have Limited Impact on Aluminum Costs

SHANGHAI, Nov. 6 (SMM) -- Market rumor reported that the National Development and Reform Commission (NDRC) will raise the selling price for electrical power recently, and yesterday media also reported that regional governments would release the electricity price adjustment programs since November 10th, and costs of electrical power remain one major factor for aluminum ingot costs. In this context, the electricity price rise will have direct impact on aluminum costs. Based on brief calculation, if the electricity price grows by RMB 0.01/kWh, aluminum costs will increase by RMB 150/mt.

    At present, although aluminum producers report profits, the thin profits of less than RMB 1,000/mt failed to cover the losses from late 2008 to early 2009, and aluminum producers will experience more losses once the electricity price climbs. However, the reluctance by aluminum producers to move goods on the grounds of losses is expected to help push up aluminum prices in the future amid current capital oversupply.

    SMM conducted a survey of selected domestic aluminum producers concerning the possibility of electricity price rise for aluminum producers and its upward room, and no detailed news have been heard currently. In addition, a large number of aluminum producers suffered huge losses in early 2009, so the electricity price for aluminum producers will not likely increase immediately along with the lift in the selling price for electrical power. Hence, aluminum producers believe any impact from the possible electricity price adjustment by the NDRC on aluminum producers will be limited.

    However, it does not mean the costs for electric power at domestic aluminum producers will report no changes. Although the Central Government provided preferential electricity prices and subsidies for aluminum producers given their huge losses, these policies will come to an end gradually, so the electric power costs at domestic aluminum producers will grow gradually with the improvement in their profits. In this context, SMM predicts overage electric power costs at domestic aluminum producers will increase slightly during 4Q. In addition, although the rapid expansion of aluminum capacity at aluminum producers with relatively low electricity price and the implementation of direct power supply policy will reduce costs of electric power efficiently in the long run, any positive impact from both remains very limited currently. 

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