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China’s southwestern province of Yunnan has ordered producers of electrolytic aluminum to reduce their power usage this week, the companies told Reuters on Tuesday.
Yunnan’s decision is another sign that soaring energy prices are having a strong impact on aluminum production across the globe, although domestic prices have seen limited impact for now.
Producers were required to cut power use by about 10% from their normal consumption from Sept. 13 to Sept. 14, officials at two producers said, who declined to be named as they were not allowed to discuss the order publicly.
The companies had already cut power consumption by 5% from normal use for Sept. 10 to Sept. 12, following an order issued by the Dali Power Supply Bureau, part of the Yunnan Power Grid.
The power curb in the southwestern province came after low rainfall in the region this year reduced its hydropower supply, which normally accounts for 75% of its electricity.
Yunnan Power Grid declined to comment when contacted by Reuters. The Dali Power Supply Bureau could not immediately be reached.
“This affects about 10% of our capacity,” said one source at a major smelter, with an annual capacity of 900,000 tonnes electrolytic aluminum.
The production cuts and disappearing cost-advantage from hydropower should provide some cost support for prices, but rising inventories also weighed on the Chinese market, said Zenon Ho, analyst at Marex Metals.
Yunnan, with an annual operating capacity of 5.25 million tonnes electrolytic aluminum, accounts for around 10% of China’s capacity.
Shanghai Metals Market forecasts China’s September aluminum output to fall 3.4% month-on-month to 3.37 million tonnes following Yunnan’s power rationing.
It remains uncertain whether the power curbs would be extended. Hydropower generation is typically weak from November onwards after the rainy season ends.
This was against the back of growing production cuts of the energy-intensive metal in Europe due to soaring energy prices.
(By Siyi Liu and Dominique Patton; Editing by Tom Hogue, Rashmi Aich and Louise Heavens)
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