China icy weather hits metal smelters in Henan, Guizhou

Wed Jan 12, 2011 12:06am EST

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* Power supplies to aluminium smelters in Guizhou to fall

* Natural gas supplies in Henan fall on icy weather

By Polly Yam

HONG KONG, Jan 12 (Reuters) - Aluminium output in China, the world's top producer, may be trimmed further this month as smelters in southwest Guizhou province face power cuts to offset soaring energy demand linked to freezing weather, industry sources said on Wednesday.

Aluminium smelting capacity, including capacity that was built but has not been started production was over 21 million tonnes a year at the end of last year.

But operating capacity was about 70 percent of the total, based on the official metal production in November, and more capacity is likely to have idled since then given that power supplies have fallen since late December in some provinces such as Henan, the top aluminium producing province in China.

Guizhou accounts for nearly 10 percent of the country's aluminium smelting capacity.

"We received (official) signals this week that the power supplies may be cut," an aluminium smelter source in Guizhou said. "If the weather does not improve next week, we are likely to have a problem."

Natural gas supplies have been cut to aluminium and lead smelters in central Henan province, the top producing province of the two metals in China, this month and local power authorities cut electricity supplies by 20 percent in late December, further limiting their production, the sources said. [ID:nTOE6BM029]

In Henan, power supply cuts have forced aluminium smelters to keep some 800,000 tonnes of annual capacity idle and have reduced operations at fabricating plants that use the metal to make semi-finished products such as profiles, plates and sheets, smelter sources said.

Aluminium prices on the three-month contract of the London Metal Exchange rose 11 percent in 2010 and traded at $2,495.25 a tonne on Wednesday, up nearly 8 percent in the past month. The price on the Shanghai Futures Exchange SAFc3 increased 2 percent last year and traded at 16,890 yuan on Wednesday, up nearly 4 percent from a month earlier.

LME lead rose 5 percent in 2010 and was indicated at $2,610 on Wednesday, up near 12 percent over the past month. Shanghai does not have a lead contract and Chinese spot lead prices PB-1-CCNMM inched up 1 percent in the past month to 17,450 yuan on Wednesday.

Icy rain and freezing weather also hit southern and southwest provinces and regions of Hunan, Guangxi, Jiangxi and Yunnan, disrupting traffic and damaging power facilities, Chinese media reported on Tuesday.

To see a factbox on the icy weather, click [ID:nTOE70503L].

The Guizhou smelter source said that local aluminium smelters prepared to idle some capacity and use limited power supplies to keep production pots warm to allow smelters to restart quickly once power supplies resume.

Many smelters in Henan cut capacity in October last year due to limited power supplies and had planned to restart before the year-end after electricity supply increased in November.

But the restart plans have been delayed again after the power supplies were cut in late December. [ID:nTOE6BG04Q][ID:nTOE6BJ022]

NATURAL GAS SUPPLY FALLS

Natural gas supply cuts to smelters in Henan have also hampered production, a trading manager at a large lead and zinc producer in the province said.

"Natural gas supply is very tight now. We use natural gas for refining. As that, we have cut production 20 percent," the manager said, whose smelter had reduced production 10 percent in late December.

In southern Hunan province, China's top zinc producer Zhuzhou Smelter has maintained normal operations, company spokesman Liu Weiqing said.

"We cannot predict the weather, therefore we couldn't predict if we will have a problem later," Liu said.

Zhuzhou produced about 500,000 tonnes of primary zinc ingots and zinc alloys, and 100,000 tonnes of primary lead in 2010, Liu said, adding output in 2011 would be about the same.

LME zinc fell 5 percent in 2010 and traded at $2,417.50 a tonne on Wednesday, up 9 percent in the past month and Shanghai SZNc3 went down 0.3 percent last year and traded at 19,130 yuan on Wednesday, up near 8 percent in the past month.

China, the world's leading producer of aluminium, lead and zinc, produced 1.18 million tonnes of primary aluminium in November, down 2.5 percent from the previous month and 14.1 percent from the same month last year.

Monthly output of refined lead hit a record of 448,000 tonnes in November.

But output of refined zinc dropped 2.5 percent month on month after Shenzhen Zhongjin Lingnan Nonfemet , China's third-biggest zinc producer, closed its Shaoguan smelter in Guangdong province completely on Oct. 21 to comply with a pollution investigation. [ID:nTOE69L09B]

(Editing by Ed Lane)

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