According to an analyst who spoke to Reuters earlier this week, Yunnan’s aluminium smelters are already starting to increase output thanks to an increase in available power in the province.
Yunnan is in the midst of recovering from a drought, which took a serious toll on its hydropower output. Yunnan is one of the country’s top producing areas, and about 70 percent of its aluminium capacity is driven by hydropower.
Li Lin, aluminium director at Chinese consultancy Aize, elaborated on the situation in a Reuters article.
“Most aluminium smelters in Yunnan are actively ramping up their production.”
Li went on to predict that up to 2.35 million metric tons per annum of aluminium capacity would ultimately return in Yunnan province. Previous estimates placed the total at only between 1 million and 1.3 million metric tons per annum of capacity that would return as a result of increased power availability.
Li says that Yunnan is one of the cheaper places to restart and to maintain aluminium production, noting that production costs are almost CN¥4,000 (US$552) below June’s prevailing price per metric ton of primary aluminium.
While aluminium prices are down at the London Metal Exchange, contracts currently traded at the Shanghai Futures Exchange rose by 0.7 percent at the start of the week to CN¥18,120.
Meanwhile, Macquarie’s analysts estimate that Yunnan would see about half of the currently shuttered capacity come back online through August. As for aluminium traders, they expect a bump in inventories in the Middle Kingdom, which may provide downward pressure on local prices.
But not all experts predicted massive production increases.
“We believe low dam (water) levels will still lead to power shortages over summer, thus limiting growth in production,” opined ANZ in a note released earlier in the week.