The Inner Mongolia Development and Reform Commission and the Department of Industry and Information Technology of China issued a notice to adjust the electricity price policies and electricity market transaction policies. The commission declared that West – Inner Mongolia will remove discounts for large power usage and smelters with captive power plants will also have to pay cross-subsidization based on the amount of power they generate and consume.
With the roll-out of the “notice on power tariff adjustment”, there are three aspects worth noting:
- Repeal the practice of lower price on more power usage;
- Impose a levy of RMB0.01/kWh (including tax) for enterprises with self-owned power plant;
- For alloy industry, an additional levy RMB0.1/kWh will be imposed on restricted category, RMB 0.3/kwh on obsolete category; the levy will go up by 30% in 2022, namely additional RMB 0.13/kWh and RMB 0.39/kWh for above said categories; and in 2023, the levy will be going up to 50%, namely an additional levy of RMB 0.15/kWh and RMB 0.45/kWh;
According to the data with the national bureau of statistics, the total output of ferroalloys in Inner-Mongolia’s Ulanqab city was 6.3015mnt in 2020, accounting for 17.66% of the nationwide total 35.677mnt.
The obsolete capacity in silicomanganese accounted for 5.88% of the monthly output in 2020 and 14.58% of the output in Inner-Mongolia. For Ferrosilicon the obsolete capacity accounted for 9.14% of the monthly output in 2020 and for 25% of the output in Inner-Mongolia. Thus, if the extra levy on power tariff kicks in, the added electricity cost to produce silicomanganese will go up by RMB 400 to RMB1,200 (3,800-4,000kwh/t), while on ferrosilicon it will go up by RMB 800 to RMB 2,400 (7,800-8,200kwh/t).
According to the documents released by Ulanqab, the restricted furnace is of 25,000 kVA or below for ordinary alloys. There are 11 furnaces for silicomanganese under this category with capacity 151,000kva and a monthly capacity 27,100t. At present, it is not clear, furnaces above 25,000kva but without closed operation or effluent treatment will also fall into the restricted category. There are 36 furnaces for silicomanganese without closed operation with a total monthly capacity of 100,000t; there are 11 furnaces for silicomanganese without effluent treatment, with a monthly capacity of 60,000t.
Impact
From Q2 CY21, the list of restricted and obsolete enterprises/equipment will be identified and announced by the above authority and corresponding power tariff will be applied in due course. This policy, together with previously released policy “reduction in energy consumption and intensity” will jointly work on and push for reform in alloy industry.
Since the release of “reduction in energy consumption and intensity”, local municipalities in Inner-Mongolia have come up with different measures of control with some scheduled to scrap the obsolete capacity within 2021 while some will complete this before 2023. This newly released power tariff policy is to charge more on slow-paced check-out of obsolete capacity.
As power costs are rigid, the difference in power costs will cause the prices of alloys to differ on the basis of the company. If the supply glut happens, those producers with higher costs will be crowed out with meagre profits.
In 2021, no new project relating to the alloy, calcium carbide, PVC, slaked lime, GE, semicoke will be granted and unless already outlined on state-level, no new coal chemical projects will be approved.
Meanwhile, the announcement did not create any spurt in demand as the Chinese market is closed for holidays from today and it is expected that its effects will be seen after people return from the New Year holidays. Since Inner Mongolia is the major production region for bulk ferroalloys, this increase in electricity tariff, which is expected to be stricter in the coming years, along with dual-energy control might bring down the production. This would provide an opportunity for exporters of ferroalloys.
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