Shandong Xinfa Aluminum May Have to Cut Production

Shandong Xinfa Aluminum and Electricity Group, China's fourth-largest aluminum maker, may have to cut output as a shortage of coal threatens to disrupt power supplies, according to a company executive.

There is a possibility the company can't get enough coal and is forced to shut aluminum cells, although it's extremely costly to do so, Fan Liangong, head of Xinfa's power generation department, said by phone from Chiping, Shandong province today.

Aluminum jumped to a record last month after Chinese producers agreed to cut output in an attempt to ease the sixth year of power shortages in the world's fourth-largest economy. A coal shortage has exacerbated the crisis in China, which gets 80 percent of its power supplies from coal-fired generators.

Some Chinese aluminum smelters have cut production by more than the 10 percent agreed to last month and will limit output until the end of the year because of power shortages and weak export demand, Wen Xianjun, deputy chairman of China Nonferrous Metal Industry Association, said Aug 6.

Chinese thermal coal prices have more than doubled to a record this year as demand rises and as the country closed down small coal mines to improve the environment.

Expensive Shandong

Aluminum smelters in Shandong incur the highest costs of production in China because of comparatively higher coal rates and land prices to other areas, Macquarie Group Ltd. analysts led by Bonnie Liu said in an Aug. 2 report.

Every city in Shandong, the country's second-largest aluminum producing province, has been ordered by the government to either cut power use or suspend production at energy- intensive plants, Shandong Electric Power Corp. said Aug. 6

¡¡¡¡Like many of its competitors in the eastern province, Xinfa generates its own power to make the energy-intensive metal.

¡¡¡¡Shandong Xinfa's annual electricity generation capacity is 8 billion kilowatt hours while its aluminum production capacity is 560,000 metric tons, according to its Web site.

Self Powered

By the end of 2008, around 61 percent of Chinese aluminum smelting capacity will be powered by self-installed generators, while another 21 percent will enjoy relatively cheap power tariffs from provincial governments, the Macquarie report said. The remaining 17 percent will have to rely on power from the State Grid at standard industrial tariffs, the report said.

The bank forecasted Chinese aluminum production to rise by 16 percent to 14.6 million tons this year, even after production losses in winter snowstorms and a 10-percent output cut pledge by 20 producers in July.

Aluminum for October delivery on the Shanghai Futures Exchange was little changed at 18,835 yuan ($2,745) per metric ton at 1:50 p.m. local time. Three-month aluminum on the London Metal Exchange

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