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China's power shortages disrupt nonferrous operations

Highlights

Several parts of China face unprecedented heatwaves

Authorities order industrial production restrictions amid power crunch

Sichuan industry most affected due to power supply issues

  • Author
  • Staff; Jesline Tang; Leah Chen
  • Editor
  • Ankit Ajmera
  • Commodity
  • Coal Electric Power Energy Transition Metals
  • Topic
  • Asia-Pacific Energy Crisis Battery Metals

Authorities in several parts of China facing scorching heat have issued electricity supply alerts, including a call for a blanket ban on energy-intensive industrial production for one week in the Chongqing city, leading ferrous and nonferrous industry players to look for options to mitigate disruptions in activity, sources said.

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Chongqing in China's southwest has called for energy-intensive industrial companies to completely halt production over Aug. 17-24 as part of emergency measures to avoid power shortages amid record high temperatures. The move follows the provincial government of Sichuan's order targeting local industrial companies to suspend production over Aug. 15-20, according to an official document seen by S&P Global Commodity Insights.

Meanwhile, Zhejiang, Anhui, Hubei, and Jiangsu provinces have also issued alerts about potential power shortages, with some industrial enterprises asked to use electricity judiciously.

Certain industrial enterprises, including nonferrous companies, have suspended or cut production to ease pressure off the electricity grid as residential power consumption becomes a priority, sources said.

Power generation in areas, such as Sichuan, Hubei, Hunan, and Chongqing along the Yangtze River, have also been facing water shortages amid extreme heatwaves and scare rainfall since mid-June.

This is the first time since 1951 that the Yangtze River basin has witnessed a low-water season so early in August, according to a report released by the Hubei provincial government.

The markets are keeping a close eye the electricity shortages as disruptions could widen if shortages continue.

Battery metals

Lithium salts producers and downstream consumers in Sichuan province have been impacted by power shortages.

Lithium salts producers have been forced to cut output, a development that could support prices on the domestic and overseas front, with prices gaining over the past few weeks.

However, the suspension of some cathode material and battery production in Sichuan is expected to cap runaway price increases, market sources said.

Sichuan is one of the key lithium salts producing provinces in China, accounting for nearly 30% of the country's capacity. Sichuan has attracted a huge number of power battery and battery materials producers over the past few years due to its rich reserves of spodumene and preferential policies.

"Our three factories have all stopped for one week tentatively. It won't change our export volumes at the moment, we have at least 10-12 days of inventory," said a local producer in Sichuan. The company will cut exports if power cuts continue for another week, the producer said.

A second producer in Zhejiang said their production was also impacted by tight power supply in the province as power was restricted during peak demand hours.

Power shortages have hurt the sentiment when the market was starting to rebound, said a third producer in Zhejiang.

Aluminum

Aluminum smelters in Sichuan have also faced power shortages and received orders to curb output, sources said.

Guangyuan Linfeng Aluminum & Electricity Co. Ltd. and Guangyuan Zhongfu High Precision Aluminum Co. have reduced production for a week since Aug. 14, S&P Global reported earlier. The move will lower their primary aluminum output by 7,300 mt and 5,600 mt, respectively.

Bosai Group Aba Aluminum Factory has already halted production due to a fire early August, pressuring aluminum supplies.

Sichuan smelters have a production capacity of about 1.07 million mt/year, S&P Global calculations showed.

Once electrolytic tanks are powered off for a certain time, it takes longer for smelters to resume production due to technology limitations.

A smelter in Shandong also curbed production since July as elevated coal prices increased production costs and declining aluminum prices squeezed profit margins, sources said.

Ferroalloy

Most high carbon ferrochrome producers in Sichuan have halted production in response to the government's call, slowing the decline in domestic prices, according to sources. However, the production halt is not enough to reverse the downtrend as demand from steel mills remains weak.

A key silicomanganese producer in Chongqing plans to suspend two submerged arc furnaces to reduce its operating rate to about 50%, while another leading silicomanganese producer in Sichuan halted production, sources said. Market participants are waiting on the sidelines as some producers have suffered losses and it is difficult to seal deals even at lower prices.

Some electric arc steelmaking plants in South China also lowered their operating rates due to electricity shortages, and that might weigh on ferroalloy demand recovery.

Copper

Copper cathodes demand in Sichuan, Chongqing, Jiangsu, Zhejiang, and Anhui has declined to some extent as processors relying on electricity production have been affected by power shortages.

China's copper demand was previously expected to keep improving over the coming months driven by rising investment in infrastructure construction and photovoltaic sectors.

Sources now expect China's copper cathode production to be impacted in August due to output cuts at smelters in Zhejiang and Anhui provinces.

Meanwhile, prices of sulfuric acid -- the key byproduct of copper production -- have fallen significantly over the past month due to weak downstream demand, and that might also impact smelters' enthusiasm to produce.