What are Implications of New Power Rationing Policy on the Copper Industry Chain?

 SHANGHAI, Aug 11 (SMM) - Beset with soaring temperatures, many regions in east China recently issued orange heat alert, and the power load rose sharply. On August 6, the Zhejiang Provincial Development and Reform Commission issued a notice of consuming electricity of 12.50 million kilowatts in an orderly manner since August 8. The amount of electricity will be adjusted based on the latest development. Subsequently, enterprises in Anhui, Jiangsu and other provinces also received notices of power curtailment one after another. What are the implications of this round of power rationing on the copper industry chain?

 

SMM survey shows that the smelters were the first to bear the blunt, which were forced to reduce the production. Specifically, smelters in Zhejiang and Anhui are currently reducing the production, which will weigh on the expected growth rate of copper cathode production in August. It is learned that the production of blister copper and refined copper of a copper smelter in Zhejiang was greatly affected, which is estimated to decline by more than 15%. (Note: the smelter has a smelting capacity of 300,000 mt/year and a refining capacity of 470,000 mt/year. In particular, its refining capacity accounts for 4% of China's total refining capacity.) At the same time, smelters in Tongling also reduced the operating rate of copper cathode production by 25-40% on daily basis from August 10, which is planned to last for a week. As for how long the production cut will endure and how much the reduction will be, it depends on the actual power shortage. (Note: the copper smelters in Tongling, Anhui province has a smelting capacity of 1.03 million mt/year and a refining capacity of 1.18 million mt/year. In particular, its refining capacity accounts for about 10% of the total domestic capacity.)

 

In terms of downstream producers, enterprises in Taizhou, Jinhua, Jiaxing, Wenzhou and Huzhou of Zhejiang province, which engaged in business of processing enamelled wires, motors, and copper rods, all received notices of power curtailment. SMM survey suggests that the copper rod enterprises in the investigated region had significantly reduced or suspended the production. Many enterprises reported that the delivery date was put off, and the output was likely to be directly affected. Enamelled wire companies also received the notice of power rationing. Fortunately, the operating rate of the machines was not high originally, and the normal production could be maintained even when some large drawing machines of high energy consumption were shut down. Therefore, the power rationing had relatively limited impacts on enamelled wire production. However, the power curtailment is still extending. Many companies received power curtailment notices on Monday (August 8), but the actual power curtailment requirements have not yet been fully released. It is still unclear when the power rationing will conclude and whether the restriction will tighten. (Note: the production capacity of enamelled wires and copper rods in Jiangsu and Zhejiang accounts for about 44% and 75% of the total domestic production capacity respectively)