Yunnan orders aluminium producers to reduce power usage in the coming weeks

Rising energy prices continue to affect China. As per the reports, Yunnan, a province in southwest China instructed aluminium producers to use less energy this week. Although local prices have not been significantly affected, Yunnan's move indicates that rising energy prices greatly influence the production of aluminium throughout the world.

Reports stated that from September 13 to September 14, the aluminium producers were ordered to reduce their energy use by around 10 per cent of their everyday consumption. Following a directive from the Dali Power Supply Bureau, a division of the Yunnan Power Grid, the enterprises already reduced their power usage from September 10 to September 12 by 5 per cent compared to regular use. Low rainfall in the area this year, which generally accounts for 75 per cent of the province's electricity, limited its hydropower supplies, which led to a power cut in the southwest.

According to Zenon Ho, an analyst at Marex Metals, production cuts and the disappearance of hydropower's cost advantage should support prices to some extent. However, growing stockpiles also put pressure on the Chinese market. Yunnan makes up around 10 per cent of China's capacity, with an annual operational capacity of 5.25 million tonnes of electrolytic aluminium.

Following Yunnan's power outages, Shanghai Metals Market predicts that China's September aluminium production would decrease 3.4 per cent month over month to 3.37 million tonnes. The extension of the power limits is still up in the air. After the rainy season finishes in November, hydropower production usually lags. Rising energy costs led to increased production reductions of the energy-intensive metal in Europe.