Private Aluminum Plants Requesting Direct Power Purchase

As state-owned aluminum plants including ChinaLCO and Yunnan Aluminum enjoy the benefits of direct power purchase, the private aluminum plants under great cost pressure are also requesting direct power purchase.

According to the “Guidance of Implementation of Direct Power Purchase by Aluminum Smelter of Sichuan in Dry Seasons”, the aluminum smelter industry will be the first one to pilot market linked power price under the framework of direct power purchase in Sichuan.

Sichuan Aostaral Aluminum Co., Ltd., Meishan Aostaral Aluminum Co., Ltd., Sichuan Guangyuan Aostaral Aluminum Co., Ltd.,Leshan Qiya Aluminum Group and Aba Aluminum were approved for direct power purchase, 3 of which were private plants.

These five companies accounted for one third of direct-purchase power of Sichuan Province.Zhao Wuzhuang, Vice Chief Engineer of China Institute of Non-ferrous Metal Technology and Economic Research, said that the power price would be lowered to different extents with direct purchase, reducing the cost of aluminum smelter.

It is estimated that the power price from direct purchase will be RMB0.03-0.06/kWH lower than normal price. Suppose every ton of electrolytic aluminum consumes 14,000 kWH, the cost for each ton will be RMB300 - 800 lower,increasing the economic benefits by 5%.

As the power cost accounted for over 40% of total of aluminum plant, it has become a critical factor affecting the competitive force of aluminum smelter.

As of the end of 2008, the build and underconstruction capacity of domestic electrolytic smelter was over 18 million tons, causing serious over-supply in contrast with the 12.6 million ton consumption. There were 97 aluminum smelters in China, with average annual capacity of only 170,000 tons. However, as these plants did not have their own power plants, they were vulnerable to market risks.

Wang Shuang, the Analyst at United Securities,the Sichuan case was different from the previous 15 pilots. Before the reform of power system, in the middle of and late 1990s, some provinces including Sichuan and Hubei conducted direct power purchase trial under the general background of low demand and oversupply.

It was only in 2004, when the “Provisional Regulations on Pilot Direct Power Purchase from Power Plants by Power Users”, that SERC and SDPC approved the piloting of two large users, i.e. Jilin Province and Taishan,Guangdong Province. In order to manage the financial crisis and promote the reform of direct power purchase, the state government approved 15 aluminum smelters for direct power purchase pilot.

It is learned that the valid period of linked price of aluminum and power will be Dec. 2009 -Apr. 2010. In case of agreement reached by the power plant, the transmission plant and the power user, the valid period can be extended to average flow season, i.e. Nov. 2009 - May.2010.