Following Electricity Price cut, Enterprises are Still Trapped in Dilemma



Following Electricity Price cut, Enterprises are Still Trapped in Dilemma

The executive meeting of the State Council made the decision on April 8 to reduce price of coal-fired power generation grid-entry electricity and prices of industrial and commercial use electricity, wherein, nationwide coal-fired power generation grid-entry electricity price is reduced by about 0.02 yuan per kWh on average, and the price of nationwide industrial and commercial use electricity is reduced by about 0.018 yuan per kWh on average.

To this end, some industry insiders said this policy would become a favorable measure for industries with high electricity cost, especially electrolytic aluminum manufacturers whose electricity cost accounts for40% of total cost.

According to what the reporter has learned, in the breakdown of production cost for electrolytic aluminum, electricity cost accounts for about 40%, based on simple calculation of average 13800 kWh electricity for production of one tonne of electrolytic aluminum, 0.018 yuan electricity cost cut will directly reduce approximately 248.4 yuan/tonne production cost for electrolytic aluminum enterprises.

Recently, reporters of the “Securities Daily” respectively contacted Chinalco and Yunnan Aluminum International Company., Ltd., both companies told the reporters that if electricity price was cut, it would definitely bring merit to the company’s electrolytic aluminum production, nevertheless, Rao Gang, Secretary of the Board of Directors of Yunnan Aluminum, also told the reporter that because the company had published “Public Notice on Implementing Marketized Electricity Usage Mechanism in 2015” early this year, this time’s electricity price cut has little impact on the company.

According to what the reporter has learned, currently power sources of electrolytic aluminum enterprises mainly include: Self-owned electricity, grid electricity and directly purchased electricity. Wherein, self-owned electricity has reached a percentage of up to about 60%, and even 80%―90% in West China, because of continually falling coal price, the price of self-owned electricity is about 0.1 yuan/kWh―0.15 yuan/kWh lower than grid electricity on average, electricity cost in West China is about 0.2 yuan/kWh lower than East China. Since self-owned electricity is not affected by electricity price cut, this time’s adjustment has no impact on at least 60% above capacity cost.

As a result, some analysts considered that comparatively speaking it is favorable to high cost electrolytic aluminum enterprises, for enterprises with high percentage of self-owned electricity and directly purchased electricity, and accordingly with relatively low cost (e.g. Xinjiang electrolytic aluminum enterprises, Shandong Weiqiao Aluminum etc), this time’s adjustment has very limited impact, whereas for enterprises with low percentage of self supplied power and high cost, it will partially lower electrolytic aluminum cost, and ease the existing loss condition.

Furthermore, Rao Gang yesterday told the reporter that because the company implemented relatively low electricity price since last year, the cost of electrolytic aluminum is relatively low, at present the electricity cost of the Company’s electrolytic aluminum production is around 0.4 yuan.

According to public notice published by Yunnan Aluminum on January 31 this year, in 2014 based on the“Opinion of Yunnan Province People’s Government on Accelerating Industrial Transition & Upgrading to Promote Steady and Relatively Fast Economic Growth” (YZF [2014] No. 17), and the “Notice of Yunnan Province Industry and Information Technology Commission on Printing and Issuing Work Plan for Marketized Absorbing of Surplus Hydraulic Power during Flood Period in 2014”, Yunnan Aluminum Co., Ltd (hereinafter “Yunnan Aluminum” or the “Company”) changes its electricity usage mechanism from the previous executing large-industry type electricity price ratified by Yunnan Province Development and Reform Commission to marketized electricity usage mechanism dominated by routine direct transaction. Based on whole year final transaction result, the company’s overall electricity price in 2014 was 0.443 yuan/kWh, down by 0.065 yuan/kWh than the previous large-industry type electricity price ratified by the Development and Reform Commission.

In 2015, based on the “Notice of Yunnan Province Industry and Information Technology Commission on Printing and Issuing Yunnan Electricity Marketization Work Plan and Detailed Implementation Rules for 2015” (YGXDL [2014] Decree No. 941), Yunnan Aluminum continued to implement marketized electricity usage mechanism, it is estimated the company’s overall electricity price in 2015 will be lowered by about 0.05 yuan/kWh than 2014, which will exert positive impact on further reducing electricity usage cost and improving performance by the company.

Whereas relevant insiders of Chinalco told the reporter that: “electricity price cut will help enterprises reduce electricity usage cost, the actual effect needs further observation.”

According to Chinalco’s 2014 annual report, last year the company fulfilled business income of 141.772 billion yuan, down by 18% on Y-o-Y basis; net profit belonging to listed company shareholder was loss of 16.2 billion yuan. Nonetheless, it is worth noticing that last year the company fulfilled 13.8 billion yuan of operational cash injection.

Meanwhile, in its annual report of 2014, Chinalco said the company’s efforts in cost reduction and efficiency increase had reaped results: By building self-owned power plants (Baotou 2×330MW self-owned unit was launched into production in June 2014) and obtaining benefit of direct purchase electricity, self supply rate of bauxite improved, Shanxi Huaxing Aluminum’s 800,000 tonnes aluminum oxide production line reached standard target and designed capacity, the company’s electricity and aluminum oxide cost dropped, the company’s overall electricity price dropped by 7%, aluminum oxide manufacture cost dropped by 5.18% on Y-o-Y basis, electrolytic aluminum manufacture cost dropped by 4.03% on Y-o-Y basis.

Shrinkage of asset and personnel and opportunity of reform operation also laid down foundation of reversing loss for Chinalco. In 2014, the company organized large-scale asset and personnel shrinkage work, it cleaned up low-efficiency and loss-incurring assets, set up provision for impairment; and made a lot of employees redundant; in management, it introduced competitive employment and other mechanism, incentive and restraint mechanism began to operate, which laid down excellent foundation for the company to further reduce cost, increase efficiency, reverse loss and extricate itself from difficulty.

According to what the reporter has learned in 2015, Chinalco would further reduce cost of factors of production, strive to develop self- supplied power plant in Guizhou and Gansu, push forward the construction of Huaze Aluminum’s 2×350MW self-owned units; complete construction of aluminum oxide project in Qingzhen, Guizhou, kick off Xing County aluminum oxide Phase II project and Zhongzhou branch aluminum oxide technological upgrading project. Strive to lower aluminum oxide manufacture cost by about 5% than 2014, electrolytic aluminum manufacture cost is reduced by about 3% than 2014, whereas this time’s electricity price cut will further lower the cost of electrolytic aluminum, and would help reverse loss in this year.

About Yunnan Aluminum, although last year’s annual report has not been released, its performance forecast has been published, according to forecast, the company’s net profit last year was loss between 400 million yuan and 450 million yuan.

About the reason of loss, Yunnan Aluminum said, reeling from the impact of slowdown in international and domestic macro economic growth, aluminum price experienced sharp decline, in 2014 average spot prices of aluminum ingot spot goods of www.cjys.net and Guangdong Nanchu were respectively 13474 yuan/tonne and 13569 yuan/tonne, compared with 14491 yuan/tonne and 14605 yuan/tonne in 2013, respectively down by about 7.02% and 7.09%, in the face of sluggish market, the company adopted cost-reduction, potential-tapping, reform and innovation, quality-improvement and efficiency-increase measures to actively address the problem, the company’s dominant products experienced certain cost decrease, it still cannot offset the impact of price drop which resulted in loss.