China raises power tariffs by 5.4 pct, to hit smelters

China will raise power prices for non-residential users by around 5.4 percent from Friday, the first rise since July 2008, to compensate grid firms that lost out because of a government cap on prices.

Power prices for non-residential users, which constitute more than 80 percent of consumption, will rise 0.028 yuan (0.4 U.S. cents) a kilowatt hour (KWH), the National Development and Reform Commission said.

The increase, slightly above the 0.025 yuan/kwh level expected by some industry officials, will probably raise the cost of production for China's electricity-hungry aluminium smelters, such as Aluminum Corp of China Ltd (Chalco) (2600.HK) (601600.SS).

"The rise is mainly to compensate power grid firms who suffered two on-grid power price rises last year, but only one retail price rise," said an official with State Grid Corp, the country's largest grid operator.

Liu Qiang, board secretary of Chalco, the country's top producer of the metal, declined to comment on the rising costs.

"We have to see the overall situations," Liu said, adding that several of Chalco's smelters were in talks with power firms to seek direct-sale deals, following a pilot pact sealed last month to help industries cut production costs.

Heng Kun, an analyst at Essence Securities, estimated the cost of production of aluminium smelters would increase by about 400 yuan per tonne to 14,400-14,900 yuan per tonne due to the power fee increase.

The production cost per tonne of copper smelters would rise about 20 yuan and for zinc smelters, 100 yuan, he added.

"Aluminium prices are going to rise," said Heng, who predicted Chinese aluminium prices would rise by 300-400 yuan a tonne in these two days.

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