24 January
Hong Kong,
Dow Jones

HONG KONG (Dow Jones)-The shutdown by Aluminum Corp. of China (ACH), or Chalco, of two aluminum production units in Guizhou province is likely to lend support to domestic aluminum prices in the first quarter.

China’s biggest aluminum producer by output said it has halted production at its Guizhou unit and Zunyi Aluminum Co. since Wednesday due to a power shortage.

"Natural disasters and insufficient supply of thermal coal in Guizhou province have led to limited power supply since December at the two plants," Chalco said in a statement on its Web site late Wednesday, adding frigid weather in January has worsened the situation.

The statement didn’t say how much production has been lost at the two plants due to the electricity shortage or indicate when production is expected to resume.

"Actually, the two plants have halted one-third of their production capacity since December, as far as I know," said Wang Feihong, chief of aluminum research at state-run metals research firm Antaike in Beijing.

Chalco’s Guizhou unit has an annual production capacity of 400,000 metric tons and Zunyi Aluminum 130,000 tons, according to Wang.

"Production is unlikely to resume until mid-March, when hydropower supply picks up," which means domestic aluminum prices will be underpinned in the first quarter, said Wang.

Goldman Sachs estimates the shutdown of the two smelters for two months could reduce Chalco’s profit in 2008 by 1%, or CNY100 million.

"We believe power shortages are a key positive for the China aluminum industry as they may further slow down aluminum supply growth, supporting higher aluminum prices given the still robust demand," the U.S. investment bank said in a research note.

Sun Hung Kai Financial analyst Eva Yip said the continuing power shortage in China could force more smelters in other provinces to shut, especially in the west.

China has been facing a power shortfall, mainly because a fall in coal inventories is forcing power generators to cut output and heavy snowstorms have damaged part of the power grid.

The nation is grappling with a shortfall of 69.63 gigawatts of power, and 13 provinces have already imposed restrictions on electricity consumption, the official Xinhua News Agency reported Wednesday.

Some provincial governments have been limiting supply to heavy electricity consuming industries, including ferro-alloy and aluminum plants, to ensure supply to households.

Around 600,000 tons of aluminum production capacity in Guizhou province alone is likely to be affected, as well as capacity in Yunnan and Sichuan provinces, which have also been seriously affected by the power shortage, Wang said.