China to Ban Favorable Power Prices for Energy-Intensive Industries

The National Development and Reform Commission (NDRC) and two other high-level departments have recently banned favorable electricity prices for electrolytic aluminum, ferroalloy, and chlorine and alkali enterprises to calm the industries' quick expansions.

The ban, also issued by the Finance Ministry and the State Regulatory Commission, was issued with a list of 10,234 companies with high power consumption, including factories 'Anshan Steel Company Limited (Anshan City, Liaoning Province) and Aluminum Corporation Of China Limited (NYSE:ACH ) (Chalco) (Beijing).

The price of electricity for the ferroalloys industry, which has been about $0.01 per kilowatt-hour (kWh) since 1999, was abolished October 20, 2007. That for the electrolytic aluminum, and chlorine and alkali enterprises will be stopped within 2008.

In China, power cost accounts for about 30% to 40% in the total cost of electrolytic aluminum enterprises, and the consumption is about 14,500 kWh per ton. The ban will raise the cost by 10%. It is even more unfavorable for the chlorine and alkali industry in which the power cost accounts for about 70%.

Analysts say the electrolytic aluminum industry is still a seller's market, which means energy-intensive enterprises can reduce the impact by raising product prices.

Though the three central departments pledged to punish the companies that failed to implement the rule, local governments are still waiting for information from the central government before they implement the ban.

Factories that have their own power generators will not be affected. This advantage may push energy-intensive enterprises to build their own power plants.