November 6, 2015 / 9:56 AM / in 3 years

China aluminium smelters seek power fee cuts as metal price hits lows

* Smelters asking for power fees of around 0.25 yuan kw per hour

* Production cuts loom if no relief on power costs

* State-owned Liancheng smelter recently got lower power charges

By Polly Yam

HONG KONG, Nov 6 (Reuters) - Emboldened by a state-owned aluminium smelter winning a cut in its electricity costs last month, other smelters in China are making a pitch to local authorities for similar cuts to cope with metal prices at record lows, people with knowledge of the matter said.

In meetings with local governments and power suppliers, smelter executives are saying a bleak outlook for aluminium prices will leave them with no choice but to cut or halt production of the metal if power prices are not reduced, the people said.

Power tariffs account for about 40 percent of production costs of aluminium smelters in China, the world’s top producer and consumer of the metal. Any output reduction in China will help support weak prices of the metal.

With power suppliers’ costs expected to fall due to low coal prices, and local governments wanting smelters to keep producing to support jobs amid the slowing domestic economy, there’s a good chance that at least some provincial local governments will agree to the smelters’ requests, the people said.

The pleas came after state-owned Liancheng smelter in Gansu province won a cut last month, although it may still stop production by the end of this year as its gross production costs are still higher than metal prices. The charges to Liancheng was cut to 0.25 yuan per kilowatt hour, from about 0.375 yuan.

Private aluminium smelters in the southwestern province of Guizhou are asking for power charges below 0.3 yuan from about 0.35 yuan currently and state-owned smelters are seeking 0.25 yuan due to higher costs, said an executive at one of the smelters and an industry source.

State-owned smelters in China typically provide more social benefits to workers, adding to their gross costs.

“Below 0.3 yuan should not be a problem in Guizhou and Guangxi,” the executive said of the private firm’s operations in Guizhou and the southwestern region of Guangxi, adding that the new fees could start from January 1.

He said his firm’s production costs would be around 10,000 yuan per tonne if the power charges were 0.25 yuan.

The most-active aluminium futures contract in Shanghai hit a contract low of below 10,300 yuan per tonne late last month. The price has risen slightly since then due to mounting production cuts, trading at 10,545 yuan on Friday.

Smelters in northwestern provinces of Ningxia and Qinghai and southwestern province of Yunnan also were seeking lower electricity tariffs of around 0.25 yuan, Xu Hongping, analyst at China Merchants Futures said. (Reporting by Polly Yam; Editing by Muralikumar Anantharaman)

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