The China green aluminium industry is grappling with significant challenges due to erratic rainfall and power cuts, undermining efforts to reduce carbon emissions. The sector, responsible for producing nearly 60% of the world’s aluminium, has experienced a decrease in output as unreliable hydropower sources impact production.

Hydropower Challenges in Yunnan

A few years ago, key players like China Hongqiao Group shifted 6.56 million metric tons of capacity—about 15% of China’s total—to Yunnan province to leverage cheap hydropower for lower electricity costs and emissions. However, frequent rainfall has rendered this hydropower source unreliable, affecting the industry’s productivity.

Despite a surge in demand for low-carbon products and robust industry profits, four Yunnan smelters have had to cut production by 10% to 40%. The hydropower shortage has also led to fluctuations in global aluminium prices, preventing producers from fully benefiting from the increased interest in environmentally friendly aluminium.

Setbacks and Capacity Adjustments

Hongqiao’s ambition to relocate almost 4 million tons of production capacity from Shandong to Yunnan has faced obstacles, particularly in reaching full operational capacity at new plants in Wenshan and Honghe due to unstable power supplies.

Despite plans for the Wenshan factory to be fully operational by August 2022 and the Honghe plant to start production in March 2023, only a fraction of the capacity has been activated, highlighting the challenges posed by hydropower reliance.

Striving for Climate Goals

Aluminium production is significant for China’s climate objectives, accounting for roughly 3% of global industrial CO2 emissions. The sector’s transformation is vital for China to meet its ambitious climate targets of peaking emissions by the end of this decade and achieving net zero by 2060.

Companies like Aluminium Corporation of China (Chinalco) were initially attracted to Yunnan by the prospect of cheaper, greener electricity. However, prolonged droughts and policy changes, including the prohibition of discounted power rates for aluminium producers, have led to higher costs and operational restrictions.

To address the electricity shortfall, Yunnan has restricted power transfers to other regions and expedited the development of alternative energy sources such as wind, solar, and additional hydropower stations.

Nevertheless, the persistent challenges are prompting some in the industry to consider moving operations to areas with more reliable power supplies, such as northwestern China, indicating a potential shift in the landscape of aluminium production due to environmental and operational pressures.

Image Source: MarketScreener