Heatwave power cuts halt zinc, aluminium production in southern China

All industrial activity in Sichuan province in southern China is being curtailed to divert tight energy supplies to households from Monday August 15 until Saturday August 20

Except for supplies to security systems, all manufacturers in 19 cities across the province - apart from Panzhihua and Liangshan - will halt all activity, the provincial government and Sichuan Electric Power Co said in a joint statement on August 14.

Shanghai-listed Zhongfu Industrial said in a filing to the exchange that its subsidiaries, Guangyuan Linfeng Aluminium and Guangyuan Zhongfu had been ordered to stop part of their operations from August 14, affecting around 7,300 tonnes of production.

Market participants estimated that zinc producers could lose up to 5,000 tonnes in output over the week.

“It is [a serious] concern when you factor in that it’s not easy for aluminium smelters to restart furnaces and that the affected aluminium capacity is up to 365,000 tonnes per year, [along with continuing] uncertainty over local power supplies,” an alumina producer source said.

“I don’t understand why the power cuts are not priced-in yet for aluminium, given all the uncertainties for it to restart,” the source added.

The front-month aluminium contract on the Shanghai Futures Exchange closed at 18,010 yuan ($2,688) per tonne on Monday, shedding 3.8% since reaching 18,725 yuan per tonne on Friday.

“I don’t see much impact on the price because downstream consumption is also really slow due to the summer lull and subdued market sentiment,” a Shanghai-based aluminium trader said.

The front-month zinc price on the SHFE closed at 24,575 yuan per tonnes on August 15, down 2.9% from 25,300 yuan per tonne on the last trading day.

“Now there seems to be more of an impact on the supply side, because zinc smelters are more energy-intensive than the downstream factories - although the latter have already reduced operating rates due to slower order books,” a Shanghai-based zinc trader said.

Primary aluminium production totaled 157,900 tonnes in Sichuan province in June, accounting for roughly 4.6% of the country’s total production of 33.9 million tonnes, according to the latest data from China’s statistics bureau.

Although the acute power shortages of 2021, which resulted in massive power outages, has not been repeated so far, the heatwave means that aluminium smelters in the hydropower-reliant Sichuan province have already had to stagger power usage prior to the latest order.

In July, Qimingxing Aluminium and Aba Aluminium implemented power rationing, affecting around 75,000 tonnes of production, sources told Fastmarkets.

On the morning of August 9, one employee died and another was injured after an explosion at the Aba Aluminium smelter.

“You can’t directly link the fatal incident to the power cuts, but it definitely happened during the staggering process of curbing power,” an alumina trader in Beijing said.

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