China Eases Power Restrictions on Aluminum Smelters, CRU Says

China authorities are easing power limits on aluminum producers, which may lead to plant restarts as early as next month, said CRU International Ltd.

A plant in Guangxi plans to restart production in December, Beijing-based analyst Wan Ling said, declining to identify the company. In Henan, conditions improved after Nov. 10, she said.

Resumption of production may help curb inflation and cool commodity prices, CRU said. China started to limit power to steel and aluminum plants from September to meet energy-saving targets by 2010. Local governments have yet to say when power supplies will return to normal.

“Controlling inflation is the government’s top priority,” Wan said in an interview from Beijing. “Further reduction of supplies will lead to higher prices, which is incompatible with the current inflation-control policy.”

Aluminum for three-month delivery on the London Metal Exchange has risen 10 percent since the end of August. China turned a net importer of the metal in September due to reduced supply, boosting global prices.

Energy cuts could trim Chinese aluminum production by 300,000 tons this year, Wan said. China is the world’s biggest producer of the metal, used in cars, aircrafts and beverage cans.

The nation’s aluminum production capacity could fall by 1.6 million tons because of the power restrictions, CRU estimated. United Co. Rusal, the world’s biggest producer, said on Nov. 6 that capacity could be cut by as much as 2 million tons.

Provinces including Hebei, Shandong and Zhejiang restricted power to steel plants. The cuts may trim steel supply through the end of the year by 9.6 percent, Mysteel Research Institute estimated in September.

“Power limits to small mills in Hebei, the largest steelmaking province, are still in place. China’s steel production was down by about 10 percent in each of the past two months, in line with our forecast. The November output is expected to fall further,” said Xu Xiangchun, chief analyst with Mysteel. “There aren’t clear signs that power limits to steel plants have been eased.”

--Xiao Yu. With assistance from Helen Yuan. Editor: Alan Soughley.