700kt/y of Aluminium Capacity Idled in Henan

Linfeng Aluminium-Power Co in Henan Province has idled 100kt/y of potroom capacity as the company has been running at a loss since the beginning of the year. The idled capacity accounts for roughly 29% of the company’s total aluminium smelting capacity.

The Company is the only smelter in Henan that entirely uses grid power resulting in huge losses after the power tariff was raised in December last year. It consumes about 4.8 billion kWh of electricity every year.

Lifeng Al-Power’s monthly losses averaged about RMB 30M ($4.7bn). Currently, power cost accounts for approximately 50% of the smelter’s total production cost, which stands at some RMB 17600/t ($2770), while since Q4 of 2011, domestic aluminium prices have lingered around RMB 16000/t ($2521).

The Shenhuo Group, another large smelter, also has shut down 250-300kt/y of capacity. The Group has three smelters, located in Qingyang, Shangqiu and Yongcheng, respectively. The Qing’ao Aluminium Smelter in Qingyang has suspended all of its 140kt/y capacity (70kt/y was shut down at the end of last year, another 70kt/y was idled in March this year), and the Xinfeng Smelter in Shangqiu has idled 100kt/y.

The provincial non-ferrous metals industry association that in fact almost all smelters in Henan have moved to shut down some potlines after suffering losses. At present, about 700kt/y of capacity across the province is idled, of which entire production lines accounts for some 585kt/y.

Henan is the leading aluminium producing province in China with an output accounting for roughly one-quarter of the country’s total. However, Henan smelters have long suffered from high power cost. Although power cost accounts for only 38% of the total production cost for smelters which have captive power plants, the average power tariff for the sector as a whole is RMB 0.15/kWh higher than the national average because only 40% of the local smelters have captive power plants. That means the average production cost for Henan’s smelters is RMB 2100/t ($330.6) higher than the average cost for all smelters elsewhere in the country.

To help the local smelters through the difficulty, the industry association has put forward several suggestions:
– The government should provide policy support to smelters on speeding up construction of captive power plants.
– Make greater efforts to develop the aluminium processing sector while capping the size of smelter capacity, with total semis production target set at 7Mt by 2013.
– Promote mergers and acquisitions among smelters, coal producers, power plants, alumina refineries and semis producers.

Source: China Metals e-mail infochn@public.bta.net.cn