Key Aluminum Smelters in China's Sichuan Operating Normally Despite Earthquake

Key aluminum smelters in southwestern China's Sichuan province said their operations remain normal, despite a 7.0-magnitude earthquake having struck Jiuzhaigou county in the province earlier last week.

A source with key Sichuan-based producer Aba Aluminum, owned by Bosai Minerals Group said Friday that "our aluminum plant has been running normally, without having been affected by the quake."

Operations at another Sichuan-based key aluminum producer, the 350,000 mt/year Sichuan Qiya Aluminium Industry Group in Leshan city, were also not affected by the quake late Tuesday.

"Our aluminum production has not been affected by the quake earlier this week," said an official at the company.

Officials from both producers did not elaborate on the utilization rate of their plants.

Data from State Development & Investment Corporation showed Aba Aluminum is currently running at 77%, or 154,000 mt/year, of its maximum refined aluminum output capacity of 200,000 mt/year.

Meanwhile, a report on the aluminum sector issued by SDIC late Thursday showed Sichuan's aluminum smelters are operating at an average 33% capacity, or 306,500 mt/year, of the province's refined aluminum output capacity of 920,000 mt/year in August.

Still, a third producer source close to the aluminum sector in Sichuan said the province's aluminum capacity has been underutilized in the past years, with its current underutilized capacity unrelated to the earthquake.

The same source noted that aluminum smelters in Sichuan -- a key aluminum production base in China -- incur higher power costs of around Yuan 0.38/kWh (5.7 cents/kWh), which would have pushed up production costs for the province's smelters, affecting capacity utilization rates.

"Many smelters in other key domestic aluminum production zones such as Inner Mongolia and Shandong have integrated coal, power and aluminum production facilities, thus they have much lower power costs," the third producer source added.

Data from China Nonferrous Metals Industry Association showed power costs account for around 40% of production costs at Chinese aluminum smelters, and range from Yuan 0.20/kWh to Yuan 0.35/kWh across various production zones, with those having been given preferential rates enjoying cheaper costs.

Environmental protection monitoring has also limited Sichuan's aluminum operation rate, the third producer source said.

The fourth batch of inspectors from the central environment protection team is stationed in Sichuan in August as part of the country's emissions control measures, the Sichuan branch of Ministry of Environmental Protection said on its website.

In a circular issued in May, the Sichuan government is targeting a utilization rate of 80% or above for its refined aluminum smelting sector, and said it aims to streamline the nonferrous metals sector structure and extend the aluminum industry chain by producing more deep processed aluminum products.

SHFE FUTURES MAY RISE FURTHER

Meanwhile, Chinese industry analysts predicted a further rise in Shanghai Futures Exchange aluminum futures prices after the September contract breached the Yuan 16,000/mt mark Thursday, citing market participants' expectations of domestic output cuts.

The most actively traded SHFE October aluminum futures contract closed at Yuan 16,090/mt Friday, up Yuan 5/mt from Thursday, SHFE data showed.

"We see SHFE aluminum prices having a chance rising further to Yuan 17,000/mt in the coming months, due to news of output reduction in the key production zones in Shandong, Inner Mongolia and Xinjiang areas," an aluminum analyst in eastern China said.

Jiangxi Copper in its August aluminum sector report said that a vast volume of funds flew back to the aluminum market, following news of output cuts carried out by the Shandong government.

It said the outlook for aluminum prices appeared rosy thanks to anticipated high speed growth in aluminum demand in the long run, as well as Chinese policies slowing down the commissioning of new aluminum projects, thus balancing supply and demand fundamentals.

China's refined aluminum output is seen at 36.6 million mt in 2017, up 12% year on year. Domestic aluminum consumption this year is estimated at 35.8 million mt, up 9% year on year led by demand from the emerging aluminum bridge, aluminum construction templates, aluminum furniture and shared bike sectors, data from state-owned nonferrous metals information division Antaike showed.

Antaike said in its aluminum sector report Thursday that aluminum stock owners in eastern China were active in selling, but due to higher prices, market participants in the domestic downstream processing sector almost did not buy, as they would rather wait and see amid bullish sentiment.

The Shandong government said in a report on its website Friday that due to the province's plan of cutting coal consumption this year, its Binzhou and Liaocheng city governments had shut a total 3.21 million mt/year of aluminum smelting capacity in end-July that were not in compliance with state rules, as those had auxiliary coal and power projects consuming a vast amount of coal.

To keep in line with Shandong's emissions control this year, the province is to restrict the aggregate output of its aluminum and alumina producers who have met emissions standards by 30% and 30%, respectively, on November 15, 2017 and March 15, 2018 -- the winter heating season -- while those who fail to meet emission rules would be told to suspend operations, according to the provincial government.