(Yicai Global) Sept. 16 -- Electrolytic aluminum producers in China’s Yunnan province have received notices from the local government to begin rationing power or halt production as the drought-induced power shortage crisis in southwestern China expanded to the province.

Yunnan Aluminum, the region’s biggest aluminum maker, announced on Sept. 13 that it was asked to cut its electricity consumption by 10 percent and close some electrolytic baths. The Shenzhen-listed company’s current annual production capacity of electrolytic aluminum is about 3.05 million tons, according to data released by its management last month.

Henan Shenhuo Coal and Power, another Shenzhen-listed aluminum maker, announced the next day that it will suspend its Yunnan-based unit’s aluminum-making operation gradually to reduce electricity consumption.

Besides Yunnan Aluminum and Henan Shenhuo Coal and Power’ local unit, Hong Kong-listed China Hong Qiao Group’s two units are also big players in electrolytic aluminum business in the province, but so far, China Hong Qiao is quite about any possible disruption in its production schedule.

The shortage in power supply in the province stems from the heat wave that hit across China’s southwest provinces this summer, which cause severe drought in a region that heavily depends on hydropower in its energy consumption, the aluminum-making companies in neighboring Sichuan province and the city of Chongqing had already announced their respective production cut plans last month.

Yunnan province’s total electrolytic aluminum capacity is 5.6 million tons, with about 5.2 million tons capacity in operation early this month, taking up 12.8 percent of the country’s total, per statistics from Chinese metals information provider Shanghai Metals Market Information & Technology.

Many aluminum makers in Yunnan have recently cut their production by around 10 percent, but the power supply is still tight, some industry insiders believed that a production cut of 20 percent to 30 percent is a distinct possibility, according to a report on the industry website shanghai metals market.

Power shortage will likely cause the electrolytic aluminum output in Yunnan to drop nearly 20 percent, GF Futures predicted in a research report, adding to the fact that there are about 1 million tons of capacity in Sichuan was halted at the end of last month, and it will take at least two months to recover, China’s aluminum production in the second half is expected to fall significantly.

With the changing landscape in supply, the most active electrolytic aluminum futures contracts on the Shanghai Futures Exchange has gained around 12 percent since the middle of July after the contract price concludes its four month slide.

Editors: Tang Shihua, Futura Costaglione