Yunnan Aluminum Production Costs Increase due to Power Problem

Shanghai --Yunnan Aluminum production costs in 2008 will reach 200RMB 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 etween 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.

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