Power shortages and a looming oversupply of some metals and weakening prices make for interesting decision making for some companies, especially if they are in China.
And when a weakening market price happens to emerge as this power crunch happens, China seems to act as one to try and modify the market weakness and correct the imbalance in power demand. Take aluminium: China has put a freeze on the use of power in some northern provinces because of a shortage of electricity and weak prices.
That has seen China Aluminium (Chinalco) cut production at a couple of major smelters for an indefinite period as the provincial governments maintain power supplies for farming and urban use.
The cuts saw world aluminium prices hit successive highs last week for the metal, as the prices of nickel, copper, lead zinc and other metals fell or remained static as other producers joined in the reductions.
Three month aluminium in London last week peaked at $US3 350 a tonne, a rise of 10% over a couple of days as China's 20 leading smelters said they would cut output by 5% to 10% from July to reduce power consumption.
Analysts reckon the move is a short-term decision to free up electricity for the summer because demand has dropped and there's not the need there for as much metal as previously thought. Analysts estimate the reduction in Chinese output will cut global aluminium supplies by 1.3 million tonnes or 3%, which will help support the weak metal price, which happened late last week.
Chinalco, or the Aluminum Corp of China, the nation's largest producer, was among 20 companies that signed an agreement to cut output by 5% to 10% which is aimed at shrinking the rapidly growing surplus of the metal around the world.
That surplus was estimated at 458,000 tonnes in the first four months of the year, according to a report from the World Bureau of Metal Statistics. The question is now whether Australian, European, South African or Canadian producers (BHP Billiton, Rio Tinto or Alcoa) will follow suit). They don't have to, but they can watch world prices rise and benefit.
And yesterday a similar situation for zinc and lead smelters in China, but one driven by weak prices and demand for both metals, not so much by power problems. China is the world's largest producer of the metals and the major processors agreed to cut output by 10% from July to September to reduce costs and help ease a power shortage.
29 producers met at the weekend to discuss the production cuts. The companies reportedly also suggested the Chinese government buy the metals when prices are close to cost and store as the country's strategic reserves.
The Association also said in a statement that cuts were also to ensure sufficient electricity for the Beijing Olympics next month, it said. Zinc and lead prices surged on Friday on hopes of the cuts would be agreed to over the weekend. Up till last week zinc prices had fallen 15% this year so far and lead by 23%, thanks to excess supply and weakening demand.
Chinese analysts reckon the agreement was reached between smaller and medium sized producers and the big players haven't agreed to the cuts and will continue to churn out metal top drive down prices and some of the competition out of business.
The moves make a mockery of warnings from interested parties (such as trade unions) of job losses here if Australia adopts a greenhouse control measure like a carbon tax and or emissions trading that are too costly.
To move a business like an alumina refinery or aluminium smelter offshore requires money, to build one in China or India, requires money and a power agreement as well.
Money is in short supply at the moment, and will be for some time: but power is in short supply in China, India, South Africa and a host of emerging economies which it is claimed, will snap up our jobs and our companies which can't or don't want to change to meet the new greenhouse emission rules.
China is supposed to be building 1 to 2 power stations every 10 days or so. Many of these stations are cleaner than the ones in Australia, and yet they can't bridge the supply gap. Nor can Southern Africa.
China doesn't want our smelters, nor does South Africa or other countries in the region (for at least the next five to six years), or Canada or Europe or Brazil. Brazil plans to build more based on bauxite and alumina resources it has, as does Saudi Arabia.
