Aluminum smelters in Henan province are worried about a small plant in the south of the province. Linfeng smelter, with only 250kt capacity, is causing smelters elsewhere in Henan province to lose sleep.
That’s because the Henan government has ordered the smelter to cut 30% of its capacity for as long as the environmental inspection team is in town. The closure was originally for only the couple of days March 10 to March 12, but because the inspection team has not left yet, the smelter has to remain in reduced running mode.
The Linfeng smelter has 234 pots, of which 50 are in idle mode (just enough electricity going through to keep the metal liquid) while another 28 pots have been switched off.
Linfeng is a locally-owned SOE, which made it easy for the government to implement the order.
The loss of metal will be tiny in market terms, but the other smelters in Henan are worried that as the inspection teams move around the province, they will be instructed to do the same thing. We called several smelters around Henan province, and they told us they expect to be ordered to slow down for a few days as well. The cost of slowing a smelter like this is hard to gauge precisely, but with high metal prices, the opportunity cost alone is significant.
Interestingly, smelters in Shandong province were not so worried, but for potentially bad reasons. When we called Shandong smelters to ask them if they would be subject to a temporary close such as we saw in Henan, the common response was, “Oh no, many of the country’s top leaders come from Shandong province, and they won’t let this area be hurt.” That response reminds me of Shakespeare’s Falstaff in King Henry IV Part 2. The new king turned on his old friend to show his new regal demeanor. In today’s political climate, top officials are going to be like the new king, and be tougher on their local patches. But we shall see.
The environmental inspections show no signs of slowing down. When this round of inspections was launched in February, it was expected they would last one month. But the teams have given no sign that they are planning to wrap up any time soon. As well, new teams have been despatched to other provinces, including Xinjiang, home to many large smelters.
By the way, all the base information about the Linfeng smelter is in the AZ China Pipeline Report. It’s in times of volatility like today that such reports really come into their own. Make sure you get yourself a subscription. Complete the contact form below, and we will do the rest.[contact-form][contact-field label=’Name’ type=’name’ required=’1’/][contact-field label=’Email’ type=’email’ required=’1’/][contact-field label=’Company name’ type=’text’ required=’1’/][contact-field label=’Please send me more information about the Pipeline Report and add my name to your mailing list’ type=’checkbox’/][contact-field label=’Comment’ type=’textarea’ required=’1’/][/contact-form]
Acknowledgements to the BBC for the feature image, from their recent production of Shakespeare’s play.
Editor’s note: Thanks to reader EO for pointing out that the Linfeng smelter is not a locally-owned SOE. It is part of the Zhongfu Industrial Group, with Vimetco the ultimate owner.