China coal price spike unlikely to rein in aluminium overcapacity

<p>Higher coal prices in China threaten primary aluminium smelters by shrinking margins. But higher coal prices do not affect all smelters equally. More than half of China&rsquo;s output of&nbsp; aluminium is sensitive to coal price increases. The balance is either immune or the impact will be delayed until 2017.<br /><br />One-third of China&rsquo;s aluminium smelters buy power directly from the grid, while the rest operate with captive power plants. Of those operating with dedicated power plants, around a quarter have access to their own coal mines so are not directly affected by coal price movements. It is the captive power plants that purchase coal which are directly impacted by changes in the coal price &ndash; albeit a varied impact depending on the province and, importantly, the technology.</p> <p><img style="vertical-align: middle; display: block; margin-left: auto; margin-right: auto;" src="http://www.alcircle.com/uploads/images/coal%20market%20china.jpg" alt="News" width="517" height="226" /></p> <p>On average, for every RMB100 per tonne (US$15.2 per tonne) increase in the price of coal, production costs at Chinese smelters with dedicated power plants buying coal from the market increase by around RMB600-700 per tonne (around US$100 per tonne of aluminium). <br /><br /><strong>Chinese smelters remain competitive</strong><br /><br />Excluding captive power plants with captive mines and smelters that purchase power from the national electricity grid then the direct impact of the increase in the coal price on China&rsquo;s primary aluminium costs of production is closer to US$100/t, which is enough to shift China from the third to the fourth decile of the global country aluminium cost league but insufficient to make the Chinese aluminium industry uncompetitive.<br /><br />{googleAdsense}<br /><br />Wood Mackenzie forecasts that coal prices will remain at or near fourth quarter 2016 rates through 2017 (approximately US$88-90 per tonne, from US$55-60 per tonne in the first half of 2016). By implication, this may mean a rise in power costs also for smelters that purchase power from the grid. However, the effect for them will be modest. The national government decides power tariff adjustments on 1 January each year. The tariff is based on a coal-power price indexation mechanism using a coal price benchmark of 2014 and is capped and floored to limit upside and downside risk to power users. <br /><br />Furthermore, once the national government establishes the new on-grid power tariff rate, provincial governments can take three to six months to pass these adjustments on to users through off-grid power tariffs, which include transmission costs. Hence, the impact to smelters purchasing power from the grid is unlikely to be felt until the end of the first quarter or second quarter of 2017.</p> <p>For the full report: <a href="https://www.woodmac.com/reports/metals-chinas-aluminium-smelters-feel-the-impact-of-coal-price-fluctuations-42510278" target="_blank">https://www.woodmac.com/reports/metals-chinas-aluminium-smelters-feel-the-impact-of-coal-price-fluctuations-42510278</a></p> <p>&nbsp;</p> <p><span style="border-radius: 2px; text-indent: 20px; width: auto; padding: 0px 4px 0px 0px; text-align: center; font: bold 11px/20px 'Helvetica Neue',Helvetica,sans-serif; color: #ffffff; background: #bd081c url('data:image/svg+xml;base64,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') no-repeat scroll 3px 50% / 14px 14px; position: absolute; opacity: 1; z-index: 8675309; display: none; cursor: pointer; top: 175px; left: 18px;">Save</span></p>