Yunnan aluminium smelters can resume 2.35 MT of capacity on hydropower recovery, expect analysts

Aluminium smelters in Yunnan province, China, have begun increasing production as restrictions on power usage have been eased following a recovery in hydropower output, said an analyst to Reuters.

According to Li Lin, aluminium director at Chinese consultancy Aize, about 2.35 million tonnes of aluminium capacity can gradually return in Yunnan on the rise of hydropower output. Hydropower accounts for nearly 70 per cent of the total power supply in Yunnan, enabling 5.25 million tonnes of aluminium production.

Yunnan, China’s fourth-largest producing region for electrolytic aluminium, had idled aluminium capacity for many months in the interim period for reduced hydropower generation. Recommencing aluminium production is expensive, but Yunnan smelters could manage it with relatively cheaper hydropower energy, following which they could also offer aluminium at about RMB 4,000 tonnes lower.

Macquarie analysts expect Yunnan to resume 50 per cent of its curtailed capacity during June-August 2023. As a result, supplies will increase to inventories in the near term, putting pressure on regional aluminium prices.

Analysts at ANZ, on the other hand, noted that low dam (water) levels in Yunnan are likely to continue leading to power shortages, thus limiting aluminium production growth.