According to a report on Monday, March 25, the aluminium industry in Yunnan province has encountered a significant hit due to dry weather, resulting in production cuts. China’s Yunnan province is otherwise known for its hydropower generation and supply.
Beijing Capital Futures released a report this month stating that a power shortage enforced restrictions on electricity consumption since November 2023, when the dry season started, causing aluminium companies to gradually cut production. By the end of February, the report showed that local aluminium production had been reduced by about 400,000 tonnes.
On Friday, March 22, the Ministry of Water Resources initiated a Level IV emergency in response to drought in Yunnan and Sichuan provinces.
Some aluminium companies in Yunnan are resuming production but at a slower rate due to power supply concerns. They aim to reach full capacity by May 2024.
However, the ministry is concerned that if production of electrolytic aluminium resumes on a large scale ahead of schedule, the local electricity shortage will worsen, given that rainfall will most likely remain low in April and May, and thus, hydropower generation will be limited.
The popular Yunnan province, known for abundant hydropower generation, has been vigorously attracting aluminium smelters. As a result, the province’s aluminium production capacity reached 6.1 million tonnes. Once all projects become operational, the capacity is estimated to exceed 8 million tonnes, accounting for one-fifth of China’s total output, according to data from Yunnan’s industry and information technology department.
The shift to Yunnan has also enabled many aluminium smelters to yield higher profit to around RMB 2,400 (US$333) per tonne, given the lesser cost of hydropower. But in recent times, Yunnan has increased thermal power generation to mitigate electricity shortage. The province’s total electricity generation grew by 5.6 per cent during January-February, with thermal power rising 15.3 per cent and hydropower generation falling 10.8 per cent.
According to Shanghai Metals Market report, Yunnan will soon release 800,000 kilowatts of power capacity for local electrolytic aluminium companies to enable them to resume production.
Kunming Power Exchange Centre forecasts that Yunnan will face an electricity shortage of about 27 billion kilowatt-hours this year, with the largest power deficit reaching 7.5 million kW.
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