* About 1.7 million tonnes of capacity liable for higher
power costs -analyst
* Affected smelters to trim unit consumption to meet
* Domestic prices expected to stay weak until 2015 -smelter
By Polly Yam
HONG KONG, Jan 8 China's additional power
tariffs aimed at energy-hungry aluminium smelters are not likely
to boost prices for the metal as enough new capacity is coming
on line to replace any plants forced to close due to the
increase in costs.
Top aluminium producer and consumer China imposed extra
power tariffs this month on smelters using more than 13,700
kilowatts (KWs) for each tonne processed, part of a scheme to
close inefficient plants and rein in overcapacity.
The additional power fees could raise costs by as much as
1,100 yuan ($180) per tonne for some smelters. Around 1.7
million tonnes of aluminium smelting capacity would be liable
for the higher tariffs, according to Shanghai-based industrial
metals information provider SMM.
That would account for around 7.2 percent of China's
operating capacity of near 23.5 million tonnes based on the
official production figures for November 2013.
Officials at aluminium smelters, though, said capacity that
paid the extra fees could be less than 1 million tonnes because
many would adjust to use less than 13,700 KWs per tonne.
"Smelters can cut the electricity use by just cleaning their
smelting pots more often," said an administration manager at a
Electricity accounts for about 40 percent of production
costs for smelters in China.
An official at Henan Nonferrous Metals Industry Association
said the new fees would not boost production costs to most
smelters in Henan. About 70 percent of the 3.8 million tonnes of
capacity in China's largest aluminium producing province relied
on in-house power plants.
In the power cost scheme that came into effect this month,
aluminium smelters that use 13,700-13,800 KWs per tonne to
produce one tonne of liquid primary aluminium will be charged an
extra 0.02 yuan per KW.
Smelters that use more than 13,800 KWs per tonne in liquid
form will be charged an extra 0.08 yuan per KW.
China in July last year also required for production of the
liquid form of aluminium that new and upgraded capacity use less
than 12,750 KWs per tonne, and that existing smelters reduce
power use to less than 13,350 KWs per tonne by end-2015.
About 4.5 million tonnes of aluminium smelting capacity may
come onstream in China this year, according to SMM analyst Zhang
That would boost production to about 28.3 million tonnes
this year from 24.9 million tonnes in 2013, creating a surplus
of about 700,000 tonnes in 2014, he said.
Domestic aluminium prices may stay weak in 2014 because of
the plentiful supply, officials at smelters and analysts said.
"Don't hope the tiered power pricing will help prices. We
see the price rising in 2015 at the earliest," a sales executive
at a large aluminium smelter said.
Aluminium prices have remained weak despite 200,000-300,000
tonnes of high-cost capacity closing over the past few weeks,
the sales executive added.
Domestic spot prices AL-A00-CCNMM have lost a quarter
since Jan. 8, 2011, and at about 14,000 yuan ($2,300) per tonne
on Wednesday, are down 7 percent from a year ago.
Low prices forced between 1.2 million and 1.3 million tonnes
of high-cost capacity to shut in 2013, and another 1 million
tonnes of existing capacity may close in 2014, Zhang said.
Currently, China has more than 30 million tonnes of annual
capacity, according to SMM and state-backed researcher Antaike.
($1 = 6.0512 Chinese yuan)
(Reporting by Polly Yam; Editing by Tom Hogue)