Leads, Zinc and Aluminium In China

Power shortages and a looming oversupply of some metals and weakening prices make for interesting decision making for some companies, especially if they are in China.

Take aluminium: China has put a freeze on the use of power in some northern provinces because of a shortage of electricity and weak prices.

That has seen China Aluminium (Chinalco) cut production at a couple of major smelters for an indefinite period as the provincial governments maintain power supplies for farming and urban use.

The cuts saw world aluminium prices hit successive highs last week for the metal, as the prices of nickel, copper, lead zinc and other metals fell or remained static as other producers joined in the reductions.

Three month aluminium in London last week peaked at $US3 350 a tonne, a rise of 10% over a couple of days as China's 20 leading smelters said they would cut output by 5% to 10% from July to reduce power consumption.

Chinalco, or the Aluminum Corp of China, the nation's largest producer, was among 20 companies that signed an agreement to cut output by 5% to 10% which is aimed at shrinking the rapidly growing surplus of the metal around the world.

That surplus was estimated at 458,000 tonnes in the first four months of the year, according to a report from the World Bureau of Metal Statistics.

And yesterday a similar situation for zinc and lead smelters in China, but one driven by weak prices and demand for both metals, not so much by power problems.

China is the world's largest producer of the metals and the major processors agreed to cut output by 10% from July to September to reduce costs and help ease a power shortage.
 
Up till last week zinc prices had fallen 15% this year so far and lead by 23%, thanks to excess supply and weakening demand.

To move a business like an alumina refinery or aluminium smelter offshore requires money, to build one in China or India, requires money and a power agreement as well.

China is supposed to be building 1 to 2 power stations every 10 days or so. Many of these stations are cleaner than the ones in Australia, and yet they can't bridge the supply gap. Nor can Southern Africa.

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