China aluminium output seen cut 600,000 tns by snow

By Polly Yam

HONG KONG, Feb 27 (Reuters) - China's recent snowstorms and power outages may reduce primary aluminium output by about 600,000 tonnes this year, equal to 5 precent of the country's 2007 output, industry officials said on Wednesday.

Reduced output in China, the world's top producer of aluminium, coupled with long-term power supply problems in Southern Africa, have driven world aluminium prices MAL3 above $3,000 a tonne for the first time since May 2006, when prices hit a record of $3,310.

But China may still produce 22 percent more of the metal this year than in 2007, or about 15 million tonnes, from capacity of 18.5 million tonnes.

"We estimate about 600,000 tonnes of production could be lost this year," said a trade manager at one large smelter.

The manager had expected China's aluminium output to reach 15.5 million tonnes this year and has revised that to 14.9 million.

China's worst winter weather in decades damaged power networks in late January and early February, adding to coal-related power shortages and forcing energy-guzzling aluminium smelters in the provinces of Guizhou, Guangxi, Hunan, Sichuan and Yunnan to halt or reduce production.

Most smelters have resumed production and will be back at full operation in April.

EASY TARGET

But Zunyi Aluminum, majority-owned by Aluminum Corp of China Ltd, or Chalco (2600.HK) (601600.SS), the country's top producer of the metal, will not start reopening its 110,000 tonne-a-year smelter until March due to repairs.

Electricity could remain a problem for smelters, an easy target for government restrictions when power supplies are tight.

"The government may consider limiting power supplies to aluminium smelters," said an analyst at Antaike Information, a state-owned research group, referring to possible spillover effects from the snow-related outages.

He said high coal prices might also discourage thermal power plants from operating at full rates, which would put further pressure on electricity supplies.

A coal shortage and the soaring cost of the fuel had shut more than 10 gigawatts (GW), or about 6 percent of generating capacity, in regions covered by China Southern Grid Corp in early January, creating a deficit of 6 GW in its area of coverage alone, Chinese media reported on Monday. [ID:nPEK7661]

Beijing plans to gradually cancel preferential power fees, or discounts on normal power rates, for aluminium smelters in coming years, according to a circular posted on the National Development and Reform Commission's Web site (www.ndrc.gov.cn) [ID:nHKG181857].

About 15,000 KWh of electricity are used for production of one tonne of primary aluminium in China.

But about 2.5 million tonnes of new aluminium capacity is expected to come on stream this year, on top of 16 million tonnes of capacity on line at the end of 2007, said Heng Kun, chief analyst at Essence Securities.

"Apart from the removal of discounts, the government may increase power fees to smelters," Heng said. (Editing by Edmund Klamann)