followers 0 popularity
following 0
tjdetai is not in any groups


detect metals co.,ltd
detai | tjdetai

Analysis: Industrial metals find silver lining in China power

Jul 8th 2015 at 8:58 AM

Other Alloy

(Reuters) - China's battle with what may be the worst power shortages in seven years could provide a lift for metals prices as Beijing forces energy-intensive smelters and users to curb production, potentially leading to larger imports.


Power cuts for heavy power industrial users in the world's biggest commodity consumer, already hit by higher credit costs as Beijing tightens monetary policy, could force them to draw on stocks, paving the way for restocking later in the year and supporting prices in the longer term, analysts said.


"From July, the whole base metals sector would be affected by power shortages. Aluminum will be hit the hardest as it uses more electricity than other metals," Li Lijuan, analyst at COFCO Futures in Beijing.


Power deficits in the 26 provinces and regions serviced by the State Grid Corp of China will total at least 30 gigawatts this summer, and could increase to 40 GW if coal and water stocks drop lower than expected.


"Copper imports may rise as early as the second half," said Zhu Bin, chief analyst at Nanhua Futures. Aluminum exports would fall and imports also rise after production cuts and expected local stock drawdowns, he added.


China has substantial stocks to work through, according to estimates from trade sources and analysts. Those estimates peg bonded copper stocks held in China at more than 400,000 tones, along with more than 600,000 tones of aluminum ingots, 500,000 tones of refined lead and over 1 million tones of refined zinc.


Imports could continue to surge in 2012 if stocks are drawn down during power cuts, analysts said. If China ends its monetary tightening cycle, conditions may also be more favorable for imports, analysts said.


"Power shortages in China should be a price positive for metals, as power cuts tend to have a bigger effect on production than demand and thus, at the margin, tighten the underlying market balance," Barclays Capital said in a note.


"We would expect production losses to be more severe in aluminum because of the power-intensive nature of the industry and the large share of the country's power generation it consumes."


Aluminum, COPPER


Record monthly aluminum production accounted for roughly 5.2 percent of China's 376.8 billion kWh power consumption in April, making it a regular target of government energy efficiency drives.


But top aluminum producer Chalco (2600.HK) (601600.SS), which has operations in Henan and controls above 15 percent of China's smelting capacity, said it does expects production cuts to be limited to 100,000 tones for 2011. That would be about 2.5 percent of Chalco's 4 million tones annual capacity.


"Our smelters are principal employers in their locating areas," a Chalco official said. "Based on previous experiences, local governments would protect them. Unless the shortages get very bad."


Smaller firms should feel the squeeze more and earlier than large smelters, prompting them to shut for maintenance on a rotating basis. Still, the smaller smelters could make up for lost output later in the year, so unless power shortages are more severe than expected, China's base metals production in 2011 is expected to rise, analysts said.


State-backed research firm Antaike has adjusted down a 2011 aluminum output estimate by 200,000 tones to 19.3 million tones, compared to 17.5 million tones in 2010, said analyst Li Yang said, citing expected pressure on smaller firms to cut back sharply this summer or shut for maintenance.


Antaike's estimates for production are higher than those published by the National Bureau of Statistics, which pegged China's output of primary aluminum in 2010 at 15.7 million tones.


Li also expects some of about 2 million tones of new aluminum smelting capacity scheduled to start production in 2011 to be delayed until 2012.


Some copper smelters are already cutting supply to the spot market due to what they see as low prices. This has already leant support to prices and prompted investors to draw bonded stocks to resell in the spot market, traders said.


On Wednesday, spot Chinese copper prices at about 68,350 yuan a tone were 200 yuan per tone lower than the import cost for bonded stocks in Shanghai, based on the cash LME and a premium of $80.


That may change later in the year, power shortages permitting, as overseas miners are paying more to Chinese copper smelters in the second half of the year, encouraging smelters to boost refined copper production.




Steel output is also likely to be hit, though not enough to ease a supply glut in China, the world's top steel producer, the China Iron and Steel Association said last week.


Energy-intensive production of nickel pig iron, used to make stainless steel, is also expected to drop. About two-thirds of producers in China are small firms using electric furnaces and make easy targets for local governments looking to trim power supply.


Antaike's analyst Hu Yongda said some lead smelters were also cutting production and selling stocks, prompted by both power cuts and low spot prices. The shutdown of hundreds of lead-acid battery makers in a crackdown aimed at reducing pollution in the eastern coastal Zhejiang and southern Guangdong provinces, has curbed output sharply already.



Related Tags:aluminum pipe for sale, 6061 aluminum pipe, 5086 aluminum pipe

Please to comment

sign in

Remember Me

New to IM faceplate? join free!

Lost Password? click here