Increase of Electricity Price Likely to Drive Industry of Aluminum Westward

On December 1, China’s National Development and Reform Commission announced to increase retail electricity price and on-grid electricity price nationwide. The increase targets electricity for non-residential use. According to relevant documents of National Development and Reform Commission, Guizhou tops the list of retail electricity price adjustment and increases by RMB 0.0499 per KWH, while Yunnan remains at the bottom of the list and increases by RMB 0.018 per KWH. Xinjiang’s retail electricity price remains unchanged temporarily. On the whole, the adjustment of retail electricity price in west China is significantly lower than that in east and central China.

The electricity price increased by up to 6.8%,higher than the previously-expected 5%. According to an insider, the remarkable price increase will bring further pressure on energyintensive industries. However, it is noticeable that increase of retail electricity price in west China, especially in northwest area, is generally lower than that in east China, which will probably further drive energy-intensive companies to move westward.

According to relevant statistics, it is estimated that the electricity price increase of RMB 0.03 will increase approximately RMB 122.4 billion for thermal power generation enterprises in 2012, but will increase approximately 90 billion of electric power cost to the industrial sector, and the Aluminum sector will bear the brunt. If one ton of aluminum needs to consume 14500 KWH to be turned into Aluminum,then the cost will increase by RMB 435. Given that the Aluminum sector has a meager profit or even breaks even, further increase of electric price will give a hard hit on the sector.

According to Lin Baiqiang, Director of Energy Research Institute of Xiamen University, 2 Chinese industries are engaged in Aluminum,namely, Aluminum industry and electric power industry. As an energy-intensive industry with low profit, Aluminum industry tends to suffer losses; while it is not the case for electric power industry. Why? Because it generates electric power by itself, i.e., this is an issue of internal settlement. Through involvement in production of Aluminum, the electric power business will be enhanced. However, electric power enterprises hope for a booming market rather than a prosperous Aluminum industry,but it may backfire.

Lin is of the opinion that electric power companies were originally allowed to make inroad into the Aluminum industry to solve their losses in the coal-fired business. However, it is difficult to force the electric power industry out of the business of Aluminum now. In the future, only genuine sustainable development of the electric power sector can solve the current problems fundamentally.

During the adjustment of electricity price, the adjustment of retail electricity price in west China is significantly lower than that in east and central China. According to the regional division standard defined in the “Statistical Bulletin of National Economy and Social Development” released by the National Bureau of Statistics of China (east, central, west and northeast), the retail electricity price of provinces in west China rises by RMB 0.02705 on average (Note: non-weighted average is adopted), while that in east China, central China and northeast China rises by RMB 0.0324, RMB 0.0337 and RMB0.0 327 respectively. The upward trend of energy cost will accelerate Aluminum production capacity moving to areas such as Xinjiang, Inner Mongolia,Gansu, Qinghai and Yunnan, etc., which have rich coal and water resources.