China's Yunnan set to boost power to aluminium smelters, sources say

BEIJING (Reuters) - Power supplies to aluminium smelters in China's southwestern Yunnan province will be increased later this month, an official familiar with the situation told Reuters on Tuesday, allowing some capacity in the drought-hit region to restart operations.

Yunnan, China's fourth biggest producing region for electrolytic aluminium, has required smelters to reduce production twice since last September, lowering operating rates by about 40% in total at some companies, after unusually low levels of rainfall impacted hydropower generation.

Hydropower accounts for about 70% of total power supply in the province, which has about 5.25 million metric tons of aluminium-making capacity.

"Now the conditions allow, we will gradually resume [power supply]," said the person, declining to give his name because he is not authorized to speak to media.

Hydro-power supply tightness has been easing thanks to more rainfall this month.

The resumption would take place in late June, he added, though exact amount of power supply to resume and the date are still being decided and will be based on weather and market demand.

The Energy Administration of Yunnan Province did not respond to several calls from Reuters.

A manager at a Yunnan-based aluminium smelter told Reuters on Monday the company had received a verbal instruction from the power grid asking them to prepare to restart production.

They will be allowed to resume 20% of halted capacity, while further resumption will depend on future power supply, he added.

He also declined to be identified because of the sensitivity of the matter.

Yunnan's power curbs have cut 1.65 million metric tons of aluminium capacity, according to Su Yanbo, researcher of electrolytic aluminium at Beijing Aladdiny Zhongying Business Consulting.

He expects around 1 million to 1.3 million metric tons to resume once power curbs ease.

"But as concerns over power supply in the second half of the year linger, there will be producers slowing down or even delaying production resumption," Su said.

It costs up to 3 million yuan ($419,556.95) to restart a 500 KA graphitized cathodes electrolyser, he added.

It would take about eight months of stable production to recover those costs based on the current profit of around 2,000 yuan per metric ton, said Su.

($1 = 7.1504 Chinese yuan renminbi)

(Reporting by Beijing Newsroom, Siyi Liu and Dominique Patton; editing by David Evans)