China chill costs metals industry millions

By Nick Trevethan and Polly Yam - Analysis

SINGAPORE/HONG KONG (Reuters) - As much as a 10th of China's metal smelting capacity has been brought to a standstill by power shortages and bad weather, and production is unlikely to be restored before mid-February, analysts say.

Snow damage to power network in Guizhou has halted production at almost all the province's 700,000-800,000 tonnes of aluminum capacity, a smelter official in Guizhou said, as power companies cut supplies to energy-intensive industries in order to maintain power for households and essential services.

While analysts do not expect a repeat of the winter of 2004, when systemic brownouts due to insufficient generating capacity prompted long-term closures, they are bracing for the lost capacity to last through the coming Chinese New Year.

"In the longer term this won't cause a significant disruption to metal supply. This is temporary and output should be restored within two weeks," economist John Kemp at Sempra Metals said.

But that still translates to 290 million yuan ($40.31 million) a week for Guizhou's aluminum industry alone and other analysts said there could be longer-term implications for an industry that accounts for a third of world production.

Geoffrey Cheng, research director for Daiwa, who expects the country's power supply will remain tight in 2008, said: "After this outage, local governments, or even the central government, may tighten power supply to all smelters, especially aluminum."

Aluminum prices surged 2.4 percent in Shanghai on Tuesday, the biggest daily move since late November, as dealers worried about supply.

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