Drought in China’s Yunnan set to cap province’s aluminium output
Severe power shortages in China's southwestern Yunnan province are likely to cut aluminium production in the country's fourth-largest producing province, analysts and producers said, but weak demand will cap price rises.
Yunnan, which accounts for about 12% of China's aluminium capacity, has forced electrolytic aluminium producers to reduce their power usage since September last year after unusually low rainfall reduced hydropower generation.
Hydropower generates about 80% of the province's electricity, and had attracted investment by energy-intensive aluminium smelters keen to lower their emissions.
The output of the metal in Yunnan jumped by 37% in 2022 from the prior year to 4.2 million tonnes.
Now, however, about 2 million tonnes of capacity, or 20% of the provincial total, is offline, Li Jiahui, an analyst at consultancy Shanghai Metals Market, told a conference in Zhengzhou.
Average rainfall in Yunnan during the first quarter of 2023 was 60% lower than the same period in typical years, the provincial government's emergency management department said.
Although the rainy season, which should start in late May, is likely to boost power supply, aluminium producers will only resume production if power is guaranteed for at least three months, smelter managers and analysts said.
It costs up to 1 million yuan ($145,315)to restart an electrolyser, and about three months of production in Yunnan to cover those costs, the analyst Li said.
"There's a likelihood that Yunnan producers will have to cut power usage again in May because of insufficient power supply," she added.
Even if producers resumed all of their production by the third quarter, output this year will still be lower than last year's, Li said.
For firms heavily invested in Yunnan, the unstable power raises costs.
"Insufficient hydropower supply brings great challenges to companies' development and production," Yao Xizhi, chief analyst at Chinalco International Trading, a unit of Chinese aluminium giant Chinalco, told the same conference.
The company is working on technology to manage the electricity load on electrolysers, he added.
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