Yunnan Aluminum Faces Surge in Production Costs due to Power Pricepolicy

Shanghai.INTERFAX-CHINA - Shenzhen-listed Yunnan Aluminum Co.
Ltd.'s production  costs  for  this  year will be nearly RMB 200 million
($28.15  million)  more  than  last  year's, as the local government has
canceled its preferential power prices, the company said on Saturday.
The Yunnan  provincial  government  removed the preferential power price
for aluminum  smelters,  previously  charged at RMB 0.0432 ($0.0061) per
kilowatt hour lower than other industrial sectors, on Dec. 25, 2007. The
central government has also asked provinces to remove preferential price
policies  for other high energy-consuming sectors, including ferroalloy,
electrolytic   aluminum,   phosphorus  and  ammonia  synthesis  sectors,
according to the announcement.

Power prices  for  high  energy-consuming  sectors  will  be  charged at
between  RMB  0.349 ($0.049) per kWh and RMB 0.397 ($0.056) per kWh this
year, according to information from Southern Power Grid.
On the basis  of  these  power  price  increases,  the  company  said it
estimates  that aluminum production costs will rise RMB 500 ($70.37) per
ton this  year,  resulting  in  a total production cost increase for the
company  and  its  subsidiaries  of  RMB  200  million  ($28.15 million)
compared to last year.

Between 14,000 kWh and 15,000 kWh of electricity are required to produce
1 ton of aluminum, with power costs making up around 40 percent of total
production costs.

Yunnan Aluminum  aims  to  offset  the  rising  power  prices  through a
combination  of  raw  material  cost reduction by expanding raw material
production,  and  by increasing high value-added processing. The company
will accelerate construction on an 800,000-ton alumina project in Yunnan
Province's  Wenshan county, and also launch an 80,000-ton aluminum alloy
plate project  and  a 40,000-ton aluminum round bar project, the company
said.

The China  National  Development and Reform Commission (NDRC) has called
for the preferential price policy towards high energy-consuming aluminum
smelters to be gradually phased out.

The favorable electricity price policy for aluminum smelters has already
been removed  in the provinces, municipalities and autonomous regions of
Shanxi,  Jiangxi,  Henan,  Sichuan,  Chongqing, Gansu, Qinghai, Ningxia,
Guangxi, Yunnan and Guizhou, the NDRC announced last week.

"The profitability  of  Chinese  aluminum  smelters  will be cut by this
year's power  price  hikes,  despite  the  likelihood of aluminum prices
reaching  record  highs  in  the  first  half  this  year  at  least, as
fundamentals  turn  in  favor  of  high  prices,"  Shenyin Wanguo Future
analyst, Li Junchao, told Interfax today.

Recent power  supply disruptions from bad weather have affected aluminum
smelters  in  China,  South  Africa  and Tajikistan, and this has led to
tight supply in the global aluminum market.

"China's  aluminum consumption will maintain momentum, especially in the
downstream real estate and transportation sectors. Fast growing aluminum
semi exports  will  support  domestic  aluminum consumption as well," Li
said.

Beijing  Antaike  Information Co. Ltd., a leading consultancy affiliated
with the  China Nonferrous Metals Industry Association (CNMIA), recently
forecast that China's aluminum consumption will surge to 15 million tons
this year, up 25 percent from last year's 12 million tons.
However,  in spite of the upward trend, aluminum prices still lag behind
other commodities, such as copper, zinc and gold. "The current low level
of aluminum   prices   compared   to   other  commodities  will  attract
speculation  funds  to  increase  long  positions,  further  pushing  up
aluminum prices," Li added.

The most  traded  May  2008  aluminum  contract  on the Shanghai Futures
Exchange  (SHFE) touched a midday high of RMB 20,555 ($2,892.71) per ton
and ended  at RMB 20,425 ($2,874.41) per ton today, up 1.09 percent from
last Friday.

The three-month  aluminum contract on the London Metal Exchange slid 1.4
percent  to  $3,106 per ton last Friday, after reaching a record high of
$3,160 per ton last Thursday.
-IC   

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