Dry season ahead in China is likely to result in aluminium production cut by up to 40% of capacity

According to the Shanghai Metals Market report on Tuesday, October 31, Chinese aluminium smelters in Yunnan province are mulling over cutting production in the coming months during the dry season due to reduced hydropower availability.

In recent times, many Chinese aluminium smelters have shifted their operations to Yunnan to leverage the abundant availability of hydropower resources, which are cheaper and cleaner than traditional power sources of coal. But the only drawback is hydropower is dependent on weather. Lack of rainfall reduces hydropower generation, resulting in aluminium production cuts.

SMM has reported that four aluminium smelters will reduce production by 9 to 40 per cent of capacity without disclosing their names. However, according to a trader, four smelters would include Yunnan Aluminium and China Hongqiao Group.

Due to the production cut, Goldman Sachs analysts estimate a supply loss of nearly 100,000 tonnes of primary aluminium per month in China from November 2023 to May 2024, while output loss will likely be around 600,000 tonnes.

The loss of domestic production will most likely make China reliant on aluminium imports..