Limited power and production upgrade!Many local “two highs” project supervision is tightened, aluminum companies have announced that production capacity is difficult to meet expectations

Aluminum producers have been mixed recently. On the one hand, aluminum prices have hit new highs; on the other hand, the power curtailment policy continues to affect production. The supply contraction caused by the reduction in output has pushed aluminum prices higher again. How much are aluminum companies affected?

Shenhuo shares cannot complete its business plan

On the evening of September 17, Shenhuo announced that due to the tight power supply, since May 10, Yunnan Power Grid Co., Ltd. (“Yunnan Power Grid”) has implemented orderly power supply to electrolytic aluminum enterprises in Yunnan Province.

The company’s holding subsidiary, Yunnan Shenhuo Aluminum Co., Ltd. (“Yunnan Shenhuo”), has significantly reduced its total power supply load and was forced to cease operations by 200,000 tons. The production capacity has dropped to 550,000 tons, and the second series and third stages are 150,000 tons. It also failed to start as scheduled. Since August, the production capacity of Yunnan Shenhuo has been organized in strict accordance with the production restriction requirements.

The impact continues. Recently, the company is aware of the notice issued by the relevant local authorities on resolutely doing the dual control of energy consumption. The notice requires that “continue to control the production of the green aluminum industry to ensure that the monthly average output of green aluminum enterprises from September to December is not higher than that in August. Yield”.

The implementation of this policy will cause Yunnan Shenhuo’s 750,000 tons of production capacity to continue to limit production, the 150,000 tons of capacity that has been built but not put into production cannot be put into production, and the 800,000 tons of business plan formulated at the beginning of the year cannot be completed. At the same time, the orderly use of electricity and the reduction in output will have a greater impact on Yunnan Shenhuo’s key technical indicators, product costs and economic benefits.

The company stated that Yunnan Shenhuo will rationally organize production and actively respond to it by arranging equipment maintenance, optimizing process control, etc., to minimize the adverse effects caused by production and power restrictions.

Yunlu shares limit down

Coincidentally, on September 17, the share price of another aluminum company, Yunlu, directly fell to the limit, because the company said the night before that the impact of power restrictions, the annual output will decline.

The Yunnan Aluminum Co., Ltd. announced that since May, due to the shortage of power supply, industrial enterprises in Yunnan Province have implemented orderly power consumption, and the power load of the company and its subsidiaries has been greatly reduced. Up to now, the company has reduced its electrolytic aluminum production capacity by approximately 770,000 tons.

Yunlu also stated that the company’s holding subsidiary Yunnan Yunlu Haixin Aluminum Co., Ltd., the completed Ludian 6.5 magnitude earthquake restoration and reconstruction of the second phase of the 380,000 tons of hydropower aluminum project after the Ludian earthquake, failed to put into operation as originally planned.

In fact, in the first half of this year, the electrolytic aluminum output of Yunlu Aluminum has declined, reducing its electrolytic aluminum production capacity by approximately 637,000 tons/year (excluding the company’s holding subsidiary Yunlu Haixin Ludian’s recovery and reconstruction of hydropower aluminum after the 6.5 magnitude earthquake. The second phase of the project has been completed and has a production capacity of 380,000 tons/year).

The company has reminded the risk in the semi-annual report that the company’s capacity load has been reduced due to the impact of power restrictions in Yunnan Province. Due to the uncertainty of the production capacity recovery time, the company expects that the completion of the 2.87 million tons of electrolytic aluminum production plan formulated at the beginning of the year is uncertain.

But the actual impact continues. The company stated that the orderly use of electricity and the reduction in output will have a greater impact on the company’s key technical indicators, product costs and economic benefits.

Recently, the relevant local authorities issued a notice on resolutely doing the dual control of energy consumption. The notice requires that “continue to control the production of the green aluminum industry to ensure that the average monthly output of green aluminum enterprises from September to December is not higher than the output of August” .

After being informed, the company believes that the implementation of this policy will result in a significant reduction in the company’s electrolytic aluminum production from September to January 2021 compared with the production plan formulated at the beginning of 2021. It is expected that the annual electrolytic aluminum production in 2021 will drop to about 2.36 million tons.

This means that compared with the 2.87 million tons of annual production plan formulated at the beginning of the year, the output has fallen to 2.36 million tons, which will be 18% lower than expected.

Electrolytic aluminum is a business that accounts for a large proportion of Yun Aluminum’s revenue. In the first half of this year, Yunlu’s electrolytic aluminum business achieved revenue of 11.4 billion yuan, accounting for 52.38% of operating revenue.

The company stated that in the face of the impact of the dual control policy of power curtailment and energy consumption, the company optimizes production organization and actively responds by arranging equipment maintenance, optimizing process control, and rationally organizing production. The company will continue to ensure power protection and resume production. Intensify communication and coordination on relevant issues, and strive to achieve an early realization of reduced production capacity and resumption of production and the second phase of the Yunlu Haixin Hydropower Aluminum Project put into operation.

In addition to the above two companies, Diou Home Furnishing and Mona Lisa have also announced that they will be affected by power restrictions. Without exception, the stock price fell sharply on the second trading day of the announcement. Among them, after Mona Lisa made an announcement on the morning of September 14, the stock price fell for four consecutive days, with a cumulative decline of 18.88%.

How big is the actual impact?

Recently, aluminum prices have set new highs. This week, aluminum prices hit a 15-year high, closing at 22,660 yuan/ton, an increase of 6.24% on a week-on-week basis. According to analyst estimates, the average profit of the electrolytic aluminum industry is 5288 yuan/ton, 11.9% on a week-on-week basis.

The reason why aluminum prices continue to rise is due to the dual control of energy consumption and the shortage of electricity, which has led to a reduction in the supply of electrolytic aluminum.

The energy consumption “dual control” system, that is, the dual control system of total energy consumption and intensity, sets energy consumption total and intensity control targets according to the administrative regions of provinces, autonomous regions, and municipalities directly under the Central Government, and supervises and evaluates local governments at all levels.

On August 17, the National Development and Reform Commission issued the “Barometer of Completion of Energy Consumption Dual Control Targets in Various Regions in the First Half of 2021”. From the perspective of the reduction in energy consumption intensity, in the first half of this year, Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, The energy consumption intensity of 9 provinces (regions) in Yunnan, Shaanxi, and Jiangsu increased year-on-year. The reduction rate of energy consumption intensity in 10 provinces did not meet the schedule requirements, and the national energy conservation situation is very severe.

The document requires that the 9 provinces (regions) whose energy intensity does not fall but rise, and the cities and prefectures whose energy intensity does not fall but rise, this year suspend the energy-saving review of the “two highs” projects other than the major projects planned by the state. And urge all localities to take effective measures to ensure the completion of the annual energy consumption dual control target, especially the target task of reducing energy consumption intensity.

In this context, the provinces are reducing energy-intensive industries.

According to reports, Xinjiang Changji requires the total monthly output of five enterprises in the region to not exceed 238,000 tons, and Guangxi requires that the output of electrolytic aluminum in September should not exceed 80% of the average monthly output in the first half of the year.

Recently, Shandong issued the “Fourteenth Five-Year Plan for Ecological Environmental Protection in Shandong Province”, which clearly stated that it must ensure that the total electrolytic aluminum production capacity is only reduced but not increased. Xinjiang has clearly defined its capacity ceiling, and the Inner Mongolia region has continued to implement dual energy consumption control.

According to calculations, electrolytic aluminum plants in Yunnan, Inner Mongolia, Guangxi, Guizhou and other places have curtailed power and shut down about 120, 400, 41, and 100,000 tons of production capacity, totaling 2.11 million tons, accounting for 5.3% of the total production capacity. In addition, the total production capacity of 2.15 million tons may be delayed, accounting for 5.4% of the total production capacity.

Analysts believe that it is expected that electricity and production restrictions in various regions will continue to have an impact on the supply side. On the consumer side, domestic and international electrolytic aluminum consumption has shown strong resilience, and subsequent inventories are expected to continue to decline. In summary, under the high pressure of “dual control” of energy consumption, the price of electrolytic aluminum is expected to rise further.

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