China's aluminum price to keep up upon cost rise

The rise of production cost, instead of power shortage, is the main factor to keep China's aluminum price up, according to an analyst. The tight coal supply this year stirred hearsay about power shortage to boost aluminum price. But power shortage is not as severeas expected. China has given priorities to energy saving and emission reduction over the past few years by way of closing small coal-fired units ofmore than 50 million kW, and speeding up installation of power generating units with large capacity and low energy consumption and low pollutant emission. According to the statistics of China Electricity Council, the power output in Jan.-July rose year-on-year 11.9 percent to 2,006.281 billion kWh, and that in July went up 8.1 percent due to some power plants' tight coal supply. Power consumption in Jan.-July increased year-on-year 10.9 percent to 2,012.6 billion kWh and that in July alone was up 7.7 percent due to cooler summer and sliding growth rate of some export-oriented industries. According to the above data, power consumption grew slower than power output in the first seven months and is not expected to soar in short term because of economic slowdown. Meanwhile, China toughened its control over coal export to ensure domestic coal supply. China's power output is expected to keep stable growth. The power shortage in a number of provinces has not yet affected their aluminum output because many aluminum plants have their own power plants. One example is East China Shandong Province with an annual production capacity of 2.54 million tons of electrolytic aluminum, of which less than five percent rely on the on-grid power supply. China's electrolytic aluminum output increased 10.6 percent year on year to 1.1335 million tons in July and kept growing momentum. Power supply problem had minor impact on electrolytic aluminum supply, and is unlikely to push aluminum price up. But this doesn't mean aluminum price at Shanghai Stock Exchange (SSE) will extend sliding trend. The cost rise is expected to keep up aluminum price. The coal price rise also lifts the cost of power production by the aluminum plants. The exit price of Qinghuangdao quality mix (5,500kcal/kg) is near 1,000 yuan/ton. Despite government's policies to control power coal price, the tight coal supply can't be reversed in short term. The climbing power coal price will directly drive aluminum plants' cost up. The expectation for alumina price rise is another factor to push aluminum price up. The alumina supply is adequate this year as alumina outputout grows the demand from the aluminum companies. The alumina price fell from 4,200 yuan/ton in the early year to the present 3,200yuan/ton. The shrinking profits had pushed some alumina enterprises to restrict production and reduce output by 3.80 million tons/year. This will exert great impact on alumina supply and price. As the power and the alumina cost accounts for 80 percent of the aluminum cost, the rise of power price and the stable alumina cost will increase the production cost of aluminum, and thus keep the spot aluminum price up at SSE. ---www.chinamining.org