China accelerating green power aluminium development

This on-going trend in China is part of a global industry-wide carbon reduction trend. It is also an effort the Chinese aluminium industry is making to meet the country’ carbon reduction requirement for high-energy consuming industries.Green-power aluminium refers to aluminium, including both liquid and ingots, produced using green power, which refers to wind, solar, hydro, geothermal, ocean, biomass and other forms of renewable energy. 

Though thermal power has been the dominant power source for aluminium industry in China, the usage of green power, particularly the hydro power has increased rapidly, Fastmarkets learned.

In around 2015, thermal power accounted for around 89% of energy used by aluminum smelters in China, and hydro power about 10%. At present, the percentage for thermal power decreases to around 74%, and that for hydro power has increased to around 19%. The industry also begun to adopt the usage of solar power and wind power, sources told Fastmarkets.

Eying green-power to reduce carbon emissions    

Reducing the indirect emissions from power consumed is crucial for Chinese aluminium smelters to lower down carbon emissions, according to sources.

“In China, aluminium industry focuses more on scope 2 carbon emissions. It is difficult to calculate direct carbon exhausted during production of the metal, [which is called] scope 1 emissions,” a trader said.

Scope 2 carbon emissions refer to indirect emissions from the generation of purchased energy. 

The scope 2 carbon emission by aluminium smelters in Yunnan is around 0.7 tonne per tonne aluminium produced, while that are more than 11 t.CO2/t.AL by smelters in northern provinces, like Shanxi, Shandong and Inner Mongolia, according to sources.

Taking advantage of the rich hydro power in Yunnan and other southern provinces has been a trend for aluminium smelters to reduce their carbon emissions, sources told Fastmarkets.

Such efforts from aluminium smelters are in line with China’s goal to reach carbon peak in 2030 and carbon neutrality in 2060 announced in September of 2020. 

Market participants estimate a capacity ceiling of 45 million tonne per year based on aluminium capacity termination and relocation plans issued by Chinese government authorities in 2018.

Identifying green-power aluminium

“China has already produced so-called low-carbon aluminium for years, considering smelters in the southwestern region mainly use hydro power for production. However, market participants often [face difficulty distinguishing such material] from those produced using thermal power,” a second trader said.

To differentiate green low- carbon aluminum, in December 2022, the Nonferrous Metals Society of China and China Non-ferrous Metals Industry Association (CNMIA) published a guide to green-power aluminium assessments and transactions, and this guide took force in March of 2023.

Also from 2023, China Green-metal Certification Center began issuance of green-power aluminium certifications to qualified aluminium smelters in the country. With the certificate, green-power aluminium can be differentiated from those using thermal power, thus meeting demands of downstream producers who have special requirements for low-carbon raw materials. 

Aluminim companies that gained the certificates in 2023 include Qinghai Branch of Chalco, Qinghai Qiaotou Aluminium Electric, Baotou Aluminium, Inner Mongolia Huayun New Material, Guangxi Baise GIG Yinhai Aluminium, Ningdong Aluminium Branch of Qingtongxia Aluminium, Baiyinhua Aluminium Electric, Guangyuan Zhongfu, with more than 850,000 tonnes of the metal recognized as green-power aluminium, according to news released by the relevant companies.

“More aluminium producers are expected to be granted the certification in the coming years,” the second trader said.

Spot market in development

“There is some trading of green-power aluminium in [China’s] domestic market. In most situations, downstream aluminium product producers purchase green-power aluminum for raw material because their overseas consumers require low carbon material,” a third trader said, adding there were a growing number of aluminium consumers, in sectors like transportation, packaging, wire and cable and consumer products, that specified low-carbon material in their supply contracts.
There is not a benchmark price differential for green-power aluminium in the Chinese spot market, and the price differential is usually negotiated between suppliers and buyers on a case by case basis, sources told Fastmarkets.

“The price differentials in Chinese market vary large in range. If a buyer has an urgent need for green-power aluminium, or has a strict requirement for the material to be low carbon, the buyer needs to pay much higher premiums above ordinary aluminium prices, like 400-500 yuan ($56-70) per tonne; otherwise, the premiums can be around 100 yuan per tonne,” the third trader said.

China’s import market of similar low-carbon aluminium is also not yet formed, sources said.

“There are discussions about low-carbon aluminium imports in recent years. China imports quite a lot of Russian aluminium, and to be honest, most of them shall be low carbon. But I have not heard of Chinese buyers paying premiums for those,” a fourth trader said, “Apart from quality, whether it is commercially workable is an important factor for Chinese buyers to import the light metal at present.”

China is still in the initial phase in the development of spot trading of green power aluminium compared with Europe and United States. In the next five to six years, market participants expect a more active spot market for this green material in China, with increasing demand from international and domestic downstream consumers.

Fastmarkets’ monthly price assessment for aluminium low carbon differential P1010A, Europe was $10-25 per tonne on Friday January 5, unchanged from one month before.

Fastmarkets’s monthly price assessment for aluminium low carbon differential P1010A, US Midwest was zero on January 5, unchanged since November 3. 

Dry season production disruptions

Operation of aluminium smelters in Yunnan face seasonal disruptions due to a tightened supply of hydro power during the region’s dry season, which usually falls from November to April of the subsequent year, with generated hydroelectric power during the period falling to less than 60% output compared with the wet season, which typically lasts from June to September, sources said.

“Aluminium market participants are very concerned about rainfall in Yunnan. With aluminum production capacities in the province increasing, tight hydro power supply has intensified. Aluminium smelters are routinely required to lower operating rates to save energy in the dry season,” a fifth trader said.

Recent news of the cancelation of a green aluminium project by Yongxin Aluminium once again raised market participants’ attention of hydro power supply issue in Yunnan.

Though Yunnan is often the first choice for capacity replacement of aluminium smelters, some smelters are considering relocating idle capacities to other regions, like Sichuan, Guizhou and Qinghai which also have green power, if a relatively stable hydropower supply in Yunnan cannot be secured, sources said.

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