Reuters reported that aluminum smelters in Henan province, China's top producer of the metal face electricity supply cuts that could hit output at a time of high domestic prices if summer power demand continues to surge.
Mr Heng Kun chief analyst at Essence Securities said that power hungry aluminum smelters in the central province have received notices from local governments to prepare for power cuts. The cuts have not started so far.
Industry sources said that a fall in production in Henan could reduce supply in the domestic market adding fuel to nearby aluminum prices which hovered near 35 month highs. Front month of Shanghai aluminum which reflects spot prices in China hit CNY 18,650 the highest level since August 2008.
The National Development and Reform Commission said that China's electricity generation already hit a record 15.096 billion kilowatt hours on July 26th 2011 surpassing highs reached in previous days due to persistent scorching heat in southern China, fuelling demand to power air conditioners and other appliances.
The figure was 8.15% higher than last year's peak daily output. China has suffered regional power shortages well before peak summer demand as low hydroelectric generation and high coal prices curbed supplies, stoking concerns of the worst summer power crunch in years.
A source at a large smelter in Luoyang city, Henan said that the local government and smelters had met about 20 days ago for the power cut warning. A trading manager at large lead and zinc smelter in Henan said the firm had not received any warnings on power cuts so far. They said if there is not enough power supply, they will restrict supply to aluminum smelters. For now, we have not received a document for the cut and the smelter was still running near full production.
Essence's Heng said that aluminum smelters in Henan may face cuts of up to 20% from normal supplies in August possibly extending into mid September if the hot weather continues. Such a cut could reduce production by between 50,000 tonnes to 100,000 tonnes based on the province's total aluminum smelting capacity of near 6 million tonnes a year near a third of China's capacity.