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Power Cuts to Trim China's Steel, Aluminum Production, Drive Metal Prices |
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DATE |
2010-09-10 08:35:48 |
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Power Cuts to Trim China's Steel, Aluminum Production, Drive Metal Prices
Fri. 01 Sep. 2010
Power cuts in China, the biggest energy consumer, may trim steel supply by 9.6 percent for the rest of the year, adding to reduction from the closures of obsolete plants, according to Mysteel Research Institute.
Provinces including Hebei and Shandong may limit power to reach efficiency targets, analysts including Bao Ruyuan from Mysteel, a researcher that counts BHP Billiton Ltd. and Nippon Steel Corp. as customers, said. Aluminum producers in Shanxi and Guizhou, which account for 6 percent of the nation’s output, were told to cut capacity for four months, said Essence Securities Co.
The world’s biggest producer of steel and aluminum is only just starting power restrictions to meet energy efficiency targets, and will accelerate the measures in the fourth quarter according to Goldman Sachs Group Inc. Benchmark Chinese steel prices, which slumped 17 percent on overcapacity between April and July, jumped to a four-month high this week.
“It will help relieve a supply surplus,” Fu Jihui, the board secretary of Angang Steel Co., the largest Chinese steelmaker traded in Hong Kong, said. “Steel prices are rebounding to reasonable levels.”
Baoshan Iron & Steel Co., the biggest publicly traded Chinese steelmaker, gained as much as 9.5 percent this week. Angang Steel surged as much as 13 percent in Hong Kong trading in the same period. Aluminum Corp of China Ltd., or Chalco, advanced as much as 6.8 percent.
China has cut energy consumption per unit GDP by 15.6 percent between 2006 to 2010, below its target of a 20 percent reduction, according to JPMorgan Chase & Co. The government has also ordered 2,000 companies, including steelmakers and smelters, to shut obsolete plants by the end of September.
‘Unprecedented Cuts’
“The magnitude of China’s steel production cuts is unprecedented,” said Hu Yanping, an analyst at UC361.com, a researcher. Steel output in the nation may drop as much as 5.6 million metric tons in September, or 10 percent of July’s monthly output, she said. Provinces affected include Guangxi, Zhejiang and Guangdong, she said.
Shanghai-based Baoshan hasn’t been ordered to shut any production lines, Yu Hong, an investor relations officer, said by phone. Angang Steel wasn’t affected by the cuts so far, board secretary Fu said. Maanshan Iron & Steel Co. hasn’t been affected, investor relations officer Hu Shunliang said.
“Steel demand is stable, but it’s too early to predict how much supply would be reduced, Hu said.
Hebei Cuts
Hebei province, the biggest steel producing region, will demand that Tangshan Iron & Steel Group, Shougang Corp., and other steelmakers curb output to meet energy targets, according to the Tangshan city government website.
“The power restriction is an extension of the previous move to shut obsolete capacity,” said Mysteel’s Zeng Jiesheng. “Still, the plant suspensions from power cuts are temporary, while the closure of outdated capacity is permanent.”
Should production cuts help support aluminum prices above 15,500 yuan a ton, Aluminum Corp. may not post a loss in the third quarter, China International Capital Corp. analysts Cai Hongyu and Zhang Fusheng said in a report yesterday. The steel industry accounts for 35 percent of the nation’s power consumption, and aluminum about 4 percent, they said.
Aluminum prices in China have averaged 15,334 yuan a ton in the quarter starting July 1. Shen Hui, a Beijing-based spokeswoman for Chalco, couldn’t be reached for comment.
Chalco Ventures
Two joint ventures of Chalco in Shanxi and a plant in Zunyi city in Guizhou may be affected, said Heng Kun, an analyst at Essence Securities.
“We are closely watching news for Henan and Shandong, the biggest aluminum making provinces,” he said. “So far, aluminum producers in Henan and Shandong haven’t been told to cut power. If this policy extends to the nation as a whole later, it could have a significant impact on the aluminum industry.”
Henan and Shandong account for 25 percent and 18 percent of aluminum output in China, respectively, according to Heng.
Jiaozuo Wanfang Aluminum Manufacturing Co., a Henan-based unit of Chalco, hasn’t been told of power cuts, secretary Jia Dongyan said. “The industry is already under profit pressure because the government abolished favorable power rates and has taken other measures to rein in the industry,” Jia said.
Source from Bloomberg |
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