China to impose tiered power pricing for aluminium smelters

China will impose tiered power pricing on all aluminium smelters starting from January in an attempt to weed out inefficient plants and tackle severe overcapacity in the sector.

The aluminum industry has been suffering from overcapacity for years, depressing prices and forcing many producers, including Aluminum Corp of China Ltd (Chalco) , the country's top aluminium maker, to suffer heavy losses.

The move to revise power tariffs, which account for about 40 percent of a smelter's operating costs, is the latest in a series of measures to slim the bloated sector and comes as Beijing has vowed to let market forces play a decisive role in the allocation of resources.

Power prices will remain unchanged for smelters that do not use more than 13,700 kilowatts (KWs) for each tonne of aluminium produced, while those that use between 13,700-13,800 KWs will be charged an additional 0.02 yuan per KW, the National Development and Reform Commission (NDRC) said in a statement.

Smelters that consume more than 13,800 KWs of power for each tonne of aluminium produced will be charged an additional 0.08 yuan per KW, the NDRC said.

Plants that exceed the 13,700 KWs/tonne threshold will also be barred from direct negotiations with power companies for lower energy prices.

The NDRC said local governments must not arbitrarily reduce power prices for aluminium companies and must stop all previously offered subsidies.

Local governments must also stop giving fee deductions and other incentives to smelters that are equipped with their own power generators, the NDRC said.

China currently has about 30 million tonnes of primary aluminium smelting capacity annually, but less than 24 million tonnes of yearly capacity operated in November, based on official production data.

Beijing has been issuing broadbrush rules aimed at reining in overcapacity in sectors such as aluminium and steel for about a decade, but plans have usually faltered due to resistance from local governments anxious to boost growth.

But China's new leaders appear to be getting more serious over the issue with the government in July setting stricter limits on power consumption and emissions on operating smelters.

The State Council, China's cabinet, also issued a slew of development guidelines for sectors facing overcapacity: new projects expanding capacity are forbidden, projects under construction should be reappraised, illegal capacity should be cleared up and outdated capacity should be eliminated in an orderly way.

The commission said it was working with relevant departments on ways to restructure other sectors that are also plagued by overcapacity. ($1 = 6.0713 Chinese yuan) (Reporting by Fayen Wong; Editing by Jacqueline Wong and Muralikumar Anantharaman)

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