China April power shortages hit aluminum and lead

Reuters reported that an unexpected coal shortage for power plants in key Chinese industrial provinces in April has caused a drop in aluminum and lead demand by end users that threatens to shut some small smelters, while larger ones face lower prices.

Industry sources said that China, the world's biggest market and maker for the two metals, normally hits peak electricity demand in the summer and can often face shortages, leading provincial officials to cut supplies to intensive energy users. But thermal coal shortages to power plants have started earlier than normal this year, leading to provincial power cuts in eastern Jiangsu and Zhejiang, southern Guangdong and the central Henan region.

Government officials have already warned the country may face the worst power shortages in years this summer on tighter thermal coal supplies and soaring demand. An international trade manager at aluminum alloy producer which sells the alloy to fabricators in Zhejiang said that the situation is not looking good since the weather just got warmer this week. A more serious shortage may start in May.

Mr Zhu Yingjun analyst at Zhejiang Yong An Futures said that some factories in Zhejiang and Jiangsu now lack power two days a week and that has cut metals demand.

Other industry sources said that aluminum fabricating plants and lead-acid battery producers in Zhejiang, Jiangsu, Henan and Guangdong had received less power in April, causing shutdowns of two days every week. But large aluminum and lead smelters are so far exempt as local authorities prefer to keep them running to avoid high restarting costs. Many of the large plants also have captive power supplies.

Prices Lower demand by fabricators means domestic prices now lag international benchmark prices on the London Metal Exchange. Spot Chinese prices are down 6.7% from a month ago to about CNY 16,700 per tonne for refined lead. Primary aluminum is down slightly on the month to about CNY 16,600.

A senior executive at a lead acid battery plant in Zhejiang said that many battery producers slowed production this month due to power shortages and in response to tighter environmental controls. In Nanhai city in Guangdong, home to dozens of semi finished aluminum product producers, factories lacked power two days a week this so far month.

An aluminum trader in Nanhai said that our business has fallen because our clients' businesses are not good. Some local aluminum fabricators used small, diesel powered generators to support operations but that could not cover their electricity needs. Some small plants have not received sufficient power this month, said a trading manager at a large aluminum smelter in Henan, which sells the metal to fabricators in Gongyi city in the province.

He said that there was concern of wider cuts if the power shortage worsens this summer. China's aluminum production rose to record high at 1.428 million tonnes in March and output is expected to increase further in April. Lead production surged by nearly 40% from a year earlier to 407,000 tonnes in March. Output is set to rise further after a 100,000 tonnes a year smelter in Henan restarted in the beginning of this month.

(Sourced from Reuters)