(Yicai Global) Dec. 14 -- The shares of Chinese aluminum firms unaffected by a 20 percent cut in electricity supplied to five producers in China’s southwestern Guizhou province, including Guizhou Huaren New Materials and Zunyi Aluminum, rose today.

Shandong Hongchuang Aluminum Industry Holding [SHE: 002379] closed up 5.8 percent at CNY4.57 (65.8 US cents), while Henan Mingtai Aluminum Industrial [SHA: 601677] added 3.9 percent to CNY19.35, having earlier climbed by as much as 5.8 percent.

China Southern Power Grid’s Guizhou branch issued a notice on Dec. 12 saying that from yesterday, it would lower the electric load of five electrolytic aluminum manufacturers in the southwestern province by 20 percent.

Since the end of November, Guizhou’s electricity consumption has risen rapidly and hydropower generators have been forced to overproduce to meet demand, the notice said. Hydropower reserves have approached the bottom line of safety, seriously endangering the safe operation of the power grid, with a risk of large-scale power rationing, it added.

The notice pointed out that due to the large gap between power supply and use, the electric load of high-energy-consuming and high-emission enterprises, not including electrolytic aluminum manufacturers, was already restricted.

‘Limited Impact’

Guizhou has five electrolytic aluminum firms, with a total capacity of about 1.32 million tons, accounting for 3.2 percent of China’s total for aluminum obtained by electrolysis, according to statistics from market information provider Shanghai Ganglian E-Commerce Holdings.

Based on Guizhou’s existing capacity for electrolytic aluminum, a 20 percent electricity load cut means a shutdown of capacity equal to 200,000 to 300,000 tons, which has a limited impact on the market, Sun Kuangwen, director of non-ferrous metal’s research and development at Xinhu Futures, was quoted as saying by Shanghai Securities News.

At present, China’s operating capacity for electrolytic aluminum is about 40.3 million tons, Sun said.

Shrinking Inventories

China’s electrolytic aluminum inventories have been declining of late, which has drawn market attention. According to data from RoyalFlush iFinD, a software developed by Hithink RoyalFlush Information Network, as of Dec. 12, China’s total electrolytic aluminum inventory was 500,000 tons, a new low since May 2018, when the data was first put on record.

Winter is the traditional slack season for consumption, when market demand is weak, according to an analysis by the research team of Shanghai Metals Market Information and Technology, a Chinese metals information provider. The recovery in supplies is slow, but a rebound in electrolytic aluminum stocks not held by producers is very likely this month, the team said.

Huaxi Securities said China’s aluminum use has not improved significantly. Rising prices have led downstream customers to take a wait-and-see attitude, it said. Demand has weakened, with company orders shrinking due to the slack season. Overseas economies face recession, while slowing economic growth has led to concerns about a demand slump.

Editor: Peter Thomas