Reduced Hydropower Affecting Output
Yunnan’s upcoming dry season is prompting several Chinese aluminium smelters to plan a cut in production due to an anticipated drop in hydropower availability, according to a recent report by metals information provider SMM.
SMM stated that four major smelters are poised to decrease their production by between 9% and 40% of their capacity. The names of these smelters were not specified in the report. However, industry insiders mentioned Yunnan Aluminium and China Hongqiao Group as two of the potentially affected entities.
Projected Supply Impact
Analysts from a well-known financial firm have estimated that China could see a reduction in supply of nearly 100,000 tons of aluminium each month from November to May. This equates to an approximate shortfall of 600,000 tons during this period. This reduced production in Yunnan is likely to push China to increase its aluminium imports.
Hydropower vs. Coal
A significant number of Chinese smelters have shifted their operations to Yunnan to leverage the benefits of its hydropower resources. This shift is mainly because hydropower stands out as a more affordable and environmentally-friendly alternative to coal. Aluminium production is highly energy-intensive, and the coal-powered approach is known for its pollution levels. This has led many companies, backed by government initiatives, to gravitate towards greener energy sources like hydropower. However, the efficiency of hydropower is contingent on seasonal weather conditions. In the past, Yunnan has mandated aluminium producers to cut back on their power consumption during periods of scant rainfall, affecting hydropower generation.
The dry season in Yunnan typically extends from November to April.