China's aluminum smelters and refineries have been facing production disruptions due to the ongoing power shortages, a development that could keep prices volatile in the near term, industry sources said Aug. 26.
Most of the primary aluminum smelters in China's Sichuan province have been forced to halt production due to the power crunch.
This would not only reduce aluminum ingot supply in the domestic market in the near term, but will also impact alumina demand, sources said.
Primary aluminum
Smelters have been witnessing widening output cuts that would slow down the accelerated growth in China's aluminum production over the past few months, sources said.
Smelters would not be able to quickly resume curbed capacity, as government focus has remained on ensuring power supply for residential use. Also, it typically takes longer time for smelters to resume output due to technology limitations.
Meanwhile, downstream demand has remained weak, with some processors and fabricators in Chongqing, Sichuan, Jiangsu and Zhejiang facing electricity shortages, sources said.
Sichuan remains the most-affected province due to the power shortages, which has forced the government to extend power rationing.
Sichuan Aostar Aluminum Co. Ltd. and Meishan Aostar Aluminum Co. Ltd. suspended production from Aug. 21.
Guangyuan Linfeng Aluminum & Electricity Co. Ltd. and Guangyuan Zhongfu High Precision Aluminum Company both have reduced production since Aug. 14.
Bosai Group Aba Aluminum Factory has already halted production due to a fire in early August.
Smelters in Sichuan have a total production capacity of about 1.07 million mt/year, S&P Global Commodity Insights calculations showed.
Qineng Electricity and Aluminum Co. Ltd., the largest smelter in the Chongqing municipality, suspended 14 electrolytic tanks over Aug. 19-23 and lowered load for the remaining tanks to reduce power consumption, according to sources. Another smelter in the city has also taken a maintenance downtime.
The most-active aluminum contract for October delivery on the Shanghai Futures Exchange, or SHFE, closed at Yuan 18,820 ($2,742)/mt Aug. 26, down 0.2% from the previous close, SHFE data showed.
Alumina
Power shortages also impacted alumina production in Chongqing and Sichuan, sources said.
Refineries in the Shanxi and Henan provinces are also expected to face production cuts, although for different issues.
They are facing heightened environmental protection controls, while fresh COVID-19 cases are also making the industry jittery in the two provinces, sources said.
Despite production hurdles, alumina oversupply is expected to stay in China, as reduction in alumina production may not be enough to offset output from new projects, they added.
Meanwhile, widening output cuts by domestic smelters will lower demand for alumina, which could weigh on domestic alumina prices, especially in southwest China.
Prices in northern China could get some support if refineries in the region are forced to curb production due to environmental controls and tight supply of raw material.
Platts assessed China domestic alumina daily at Yuan 2,900/mt ex-works Shanxi Aug. 26, with prices remaining steady since Aug. 11, according to S&P Global data.