Yunnan, China emerges as a new victim of hydropower shortage; Aluminium production cut is in mind

After Sichuan, another southwestern Chinese province that emerges as being affected by hydropower shortages is Yunnan, triggering concerns over potential output reduction in the province. According to the latest survey by Shanghai Metals Market, many smelters in Yunnan have expressed concerns over power supply, though having normal operations to date.

A possible production cut in Yunnan, a major aluminium producing province leveraging hydropower, is anticipated to be adversely impactful for the entire aluminium industry.

Yunnan, for having substantial hydropower resources and favourable policies for smelting, could manage to attract a sizeable amount of aluminium capacity over a few years. As per the current data, the installed aluminium capacity in Yunnan currently stands at around 5.63 million tonnes, which is 23 per cent more than the previous year and accounts for 12.7 per cent of China’s total installed capacity.

At the end of August, the operating aluminium capacity in Yunnan stood at 5.25 million tonnes, up 94.4 per cent year-on-year. In the future, the province stands a fair chance to rank first in China for its aluminium production capacity, with Weiqiao Group transferring facilities to Yunnan. SMM estimates the aluminium production capacity of Yunnan to exceed 9 million tonnes in the coming time.

The abundant availability of hydropower in the province is one of the most important factors behind its journey to becoming a leading aluminium production hub. With 12 big hydropower stations such as Wudongde, Baihetan, Xiluodu, Nuozhadu, and others being put into operation successively, Yunnan’s installed hydropower capacity has surged from 34.99 million KW to 78.2 million KW.

But given the aluminium capacity reaching new highs in Yunnan, smelters feel an intensified pressure of hydropower supply. Local hydropower companies said nearly half of the main power stations reported insufficient water supply in August, while water storage of main reservoirs decreased compared to the last year, which may threaten the power supply in Yunnan this winter and next spring. The current water level and rainfalls are increasingly putting the local aluminium smelters into a fear of power rationing and production curtailment after the dry season arrives.

According to SMM’s preliminary estimates, China’s domestic installed capacity totalled 44.47 million tonnes at the end of August, with operating capacity decreased by 800,000 tonnes year-on-year. If Yunnan’s 20-30 per cent of aluminium capacity is reduced due to power rationing, the country’s domestic operating capacity may fall below 40 million tonnes. Also, the uncertain power supply in future will have an impact on the transfer of aluminium capacity from other regions to Yunnan.