September 17, 2018 / 7:44 AM / 2 months ago

UPDATE 1-Aluminium maker China Hongqiao slumps as new power fees introduced

* Shandong province sets fees on captive power plants

* Aluminium production costs may rise by 500 yuan/T -analyst

* China Hongqiao could face 3 bln yuan bill -analyst (Updates throughout)

By Tom Daly

BEIJING, Sept 17 (Reuters) - Shares in top global aluminium producer China Hongqiao Group tumbled a second day after its home province of Shandong announced new fees for onsite power plants.

Hongqiao shares fell as much as 8.5 percent on Monday to HK$5.30 ($0.675), a two-year low. The shares fell nearly 16 percent on Friday.

The declines came after the Shandong commodity price bureau said owners of captive power plants would have to pay 0.05 yuan ($0.0073) per kilowatt hour (kWh) of electricity generated from July 2018, rising to 0.1016 yuan per kWh after the end of 2019.

China wants to curb the use of onsite coal-fired electricity plants - which provide cheaper power than the grid - as part of a campaign for cleaner air.

Shandong is one of the first provinces to publish such fees after China’s top economic planner, the National Development and Reform Commission, said in July it would force factories with onsite power plants to pay fees to help fund $12 billion in cuts to commercial and industrial electricity prices.

The policy will increase aluminium production costs for smelters using captive plants in Shandong by around 500 yuan a tonne in the initial 18-month period alone, said Helen Lau, an analyst with investment house Argonaut.

Lau put average industry production costs at 14,500 yuan per tonne. Aluminium on the Shanghai Futures Exchange closed down 1 percent at 14,445 yuan a tonne on Monday.

“The unit profit (for Chinese smelters) may be 200 or 300 yuan per tonne,” Lau said. “If this cost increased by 500 yuan per tonne, their profit will be wiped out.”

Smelters’ margins have already been squeezed in recent months by the rising price of alumina, the raw material used to make aluminium.

If applied across Hongqiao’s operating aluminium capacity of 6.46 million tonnes a year, the extra 500 yuan a tonne in costs would total about 3 billion yuan, Lau said. Hongqiao posted a net profit of 1.8 billion yuan in the first half of 2018.

Hongqiao said in an email to Reuters that since it has received no official notice from Shandong province on the policy that it cannot make any comment on the rise in production costs.

In a Hong Kong stock exchange announcement, however, the company said such a policy would affect the cost advantage of its “power plants to some extent but will not have a fundamental impact on the core competitive advantages of the Group.”

$1 = 6.8696 yuan Reporting by Tom Daly; Editing by Richard Pullin and Tom Hogue

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