Chinese aluminum industry facing higher energy charges

It is reported that China¡¯s huge energy guzzling aluminum industry may have to pay higher prices for electricity in the second half of 2008, as generators raise tariffs to offset a 60% jump in coal prices in the past year. Smelter officials and analysts said increased power costs could erase smelters profits and prompt higher cost producers to close capacity, starting as soon as the first half of next year.

China trying to keep inflation in check, has kept power tariffs essentially unchanged since 2006, despite strong coal prices, which have risen more than 60%in the past year. But smelter officials believe Beijing may allow power operators to raise fees to industrial users as soon as July to keep loss-making power plants from stopping production.

Mr Geoffrey Cheng director at Daiwa Securities research unit in Hong Kong said "Many people anticipate the hikes will come in the fourth quarter, while some say the hike may happen before the Olympics. After the hikes, some smelters may not be profitable."

China, the world¡¯s largest producer of the lightweight metal, is expected to produce some 15 million tonnes of aluminum in 2008, about 18% of the world total and at least another 3 million tonnes of capacity is scheduled to start production by year end.

Unexpected closures of smelting capacity in China could cut global supply of the metal, which is used in the construction, packaging and automotive sectors, boosting prices on the London Metal Exchange.

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