In spite of low primary metal prices, rising power costs, reports that a significant proportion of China’s smelting capacity is losing money at current prices, and widespread predictions of smelter closures, two Reuters reports suggest Chinese smelting capacity is set to almost double over the next five years.
The first report quotes a senior analyst at state-backed research firm Antaike, who said the rate of smelter construction is powering ahead at such a breakneck pace that China faces a surplus of 250,000 tons of primary aluminum next year. China’s aluminum production may rise 12 percent on the year to 21.95 million tons next year, above the 11.3 percent growth rate forecast for 2011 and the year’s 19.6 million-metric-ton production, Yao Xizhi is quoted as telling an industry conference in Zhuhai, Guangdong province. As expected, power tariffs have continued to rise. An increase of 5 percent for non-residential users was announced this week, and indeed reports suggest smelters in Henan province, said to be higher-cost, may have to close. But many new smelters are still being built in their place.
Hu Changping of the China Nonferrous Metals Industry Association predicted capacity would jump above 40 million tons by 2015 from 25 million tons at the end of this year production is not running at capacity, hence the difference between the 19.6 and 25.0 million tons numbers. Hu is quoted as saying China has completed the building of 2.75 million tons of new aluminum smelting capacity so far this year, of which about one million tons has started commercial production.
He went on to say that in 2012, about 4 million tons of new capacity is due to kick off production and the bulk will come from the resource-rich western provinces, especially Xinjiang, boosting the annual capacity to nearly 30 million tons. About 10 million tons of planned new capacity would be built in the northwestern region of Xinjiang by 2015, taking total capacity to the region of 40 million tons.
Get this, though — the enthusiasm for the remote northwestern region of Xinjiang is in part to take advantage of cheap solar and wind energy supplies. Cheap! How Beijing can supply power from these facilities at less than the cost of power from a nuclear power station is the inverse of the West’s position, where without subsidy, renewable power production loses money.
In addition, no explanation is given as to how power can be economically supplied when the wind doesn’t blow, or during the night. Beijing must have a solution to this perennial dilemma of wind and solar; you can’t sanction the construction of 10 million tons of smelter capacity without a very clear power supply strategy, but details were not released in the report, if indeed they were even discussed at the conference.
If any of our China watchers on the ground have any further details on how these renewable resources are to be made economically viable for aluminum smelting, we would be very interested to read your comments.