Aluminium smelters in the People’s Republic of China are expected to pare down production in the coming weeks thanks to imminent power rationing in Yunnan.
Industry media reported that power cuts began last week, and local aluminium smelters will be compelled to reduce production by around 650 thousand metric tons per annum. Further power cuts may be in the offing if water levels in Yunnan fall below sustainable levels.
Already this month Qiya Aluminium Company, Ltd. commenced capacity cuts, dropping its 55 thousand metric tons per annum of aluminium production capacity.
Overall, aluminium production capacity is expected to drop by 800 thousand metric tons per annum, with 415 thousand metric tons ordered to be curtailed last weekend.
As a result of the news, prices for aluminium on the commodities market rose, as the major aluminium contract on the Shanghai Futures Exchange rose by 1.4 percent to CN¥18,775 on Monday.
This month’s cuts were a stark reversal from 2022, when China’s aluminium production rose by 4.5 percent to a record high. Production of aluminium was driven by new capacity and a rollback of mandatory aluminium production cuts.
Saxo Bank’s commodity strategist Ole Hansen said that other avenues of production could take up some of the slack.
“It looks like the market is finding some support from the pick up in aluminium prices with production being curbed further in Yunnan province.”
“There are still plenty of supply concerns underpinning metals prices,” he continued.