SHANGHAI (Interfax-China) -- Disruptions in power supply from bad weather in southern and eastern China have crippled the country's metals industry, with production either grinding to a compete halt or being severely reduced, according to companies in the industry.
Since 10 January, rain, sleet, snow and frost have hindered energy production, as well as coal transportation. Additional strain brought on by high volumes of travellers returning to their home towns for the Spring Festival holidays and tight restrictions on energy prices have contributed to the crisis. In addition, the government has repeatedly urged local authorities to prioritize coal-fed power stations when allocating limited coal resources, so as to avoid civil unrest from electricity shortages.
"We are facing difficulties in sourcing coal for power generation, and the heavy snow is making the situation worse. Other steel mills in regions hit by snow have the same problem as us," a senior official surnamed Chen, with Wuhan Iron and Steel (Group) Co. Ltd. (WISCO), the fourth largest steel company in China, told Interfax today.
The company shut down some non-core operations, including machinery manufacturing and other affiliated facilities, as of 20 January so as to save power and prioritize normal steel production.
Most of the country's steel mills face similar challenges, and coke prices have surged to an unexpected high due to the supply shortfall.
The ongoing snow and ice storms have led Chenzhou Mining, a leading gold miner, to halt production in various mines in Hunan Province. The company said in an announcement today that it had insufficient raw materials due to poor transportation, as well as shortages of power and water supplies. Production may resume after the Chinese Spring Festival holiday in late February, the company said.
Hunan-based Zhuzhou Smelter Group, China's largest zinc smelter by output, has stopped refined lead production and has suspended the operations of some of its zinc smelting facilities due to power shortages, an official with the company told Interfax today.
"Our raw material supply is blocked by poor transportation, and electricity supplies are limited by harsh weather. Resumption will depend on whether the weather improves," the official said.
He declined to say how much zinc capacity the company has cut.
Zhuzhou Smelter produced 415,000 tonnes of refined zinc and 94,300 tonnes of refined lead in 2007. For 2008, it plans to produce 428,000 tonnes of refined zinc and 96,000 tonnes of refined lead.
In Guizhou Province, two aluminium plants under the Aluminum Corporation of China Co. Ltd (Chalco) [NYSE:ACH], Zunyi Aluminum and Guizhou Aluminum, shut down all their facilities, or 540,000 tonnes of annual capacity in total, since 23 January to prioritize power for residents. Other small aluminium smelters have been also been impacted by power shortages.
Guizhou has cut about 700,000 tonnes of aluminium production capacity so far, equivalent to more than 90% of the province's total capacity.
In addition, Sino Gold's [ASX:SGX] Jinfeng Gold Mine in Guizhou, a major gold mine in China, will cut the production by an estimated 12,700 ounces of gold in February because of power shortages, according a company statement released today. The company said it was notified by local authorities that full power supply may not be available until after the Spring Festival.
Government Efforts to Solve the Power Shortage
Chinese Premier Wen Jiabao has urged government bodies and local authorities to safeguard fuel and electricity supplies as severe weather is forecast to continue to batter southern China for at least another 10 days.
Coal transportation has been especially hard hit, which is bad news for a country that generates 78% of its power from coal-fired plants. In addition, heavy snowstorms have damaged power grid infrastructure. National thermal coal stockpiles are currently at a low of 20.32 million tonnes.
The current crisis is due to tight government control of fuel prices, a severe transportation bottleneck from bad weather and additional demand strains brought about by the upcoming Spring Festival holiday.
Under such circumstances, the National Development and Reform Commission (NDRC), the country's economy watchdog, will re-open some closed coalmines to alleviate the shortfall in coal supply as long as they have no safety problem, Zhu Hongren, a senior official with the NDRC, said yesterday.
In addition, China's Transport Ministry has ordered the country's ports to temporarily halt coal exports in order to give priority to coal shipments destined for domestic use.
(c) Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at email@example.com or (852) 2537-2262.