China's Baotou clamps down on energy consumption, driving up aluminium prices

The Chinese city of Baotou in Inner Mongolia on Monday ordered some industrial production and power plants to shut down in a bid to meet its energy consumption targets for the first quarter, sending Shanghai aluminium prices toward decade highs.

A document posted on the Baotou government website said the city, renowned as one of China's rare earth hubs, would shut down 34 ferroalloy companies and some captive power plants as part of a series of measures it said could reduce its energy consumption by 162,000 tonnes of standard coal in March.

Many aluminium producers in China use their own coal-fired captive power plants for the energy-intensive smelting process, but Chinese cities and regions are under pressure to rein in energy usage as China aims to reach a peak in its carbon emissions before 2030.

Shanghai aluminium prices rose as much as 2.7% to 17,830 yuan ($2,743) a tonne on Monday, within a whisker of the 9-1/2 year high of 17,870 yuan struck on March 4, when Inner Mongolia's move to halt approvals of new smelting capacity was also roiling markets.

Industry pricing and information provider SMM reported that smelters East Hope and Baotou Aluminium would each have to reduce power consumption by 150 million kilowatt hours, citing an internal Baotou document.

A Baotou government spokeswoman was not immediately able to confirm those requirements. East Hope and Baotou Aluminium did not immediately respond to requests for comment.

CRU analyst Wan Ling estimated aluminium production cuts as a result of the Baotou energy consumption measures would total around 100,000 tonnes on an annual basis.

That is a relatively small amount but is still having quite a large "psychological impact" on the market, she noted, adding that aluminium processors could also be affected.

China churned out 6.45 million tonnes of primary aluminium in January and February combined, with average daily output at a record high.