TOKYO — Some of Japan’s nonferrous metal producers have warned that they will face a struggle to remain profitable if power companies go ahead with planned price increases.
Tokyo Electric Power Co. Inc. (Tepco) plans to raise prices sharply starting April 1 in a move that the Japan Mining Industry Association fears will be followed by other electricity companies, raising production costs for metals by a significant amount.
"If other power companies follow Tokyo Electric’s hike, it will be difficult to maintain our businesses," association chairman Masao Yamada said. Zinc, ferronickel and titanium smelters are at particular risk, given that their power consumption is much higher than that of other smelters.
Japan’s nonferrous metal producers consume up to 5 billion kilowatt hours per year, and the power increases could add some 12 billion yen ($128.7 million) per year to production costs, according to the association.
At least two other regional electric utilities—Kansai Electric Power Co. Inc. and Kyushu Electric Power Co. Inc.—have said they plan to increase their rates by around 14 percent in April.
"It is very difficult to increase (our product) prices, which means that the main effort has to be on reducing operating costs. But there is only so much we can reduce our costs by, so we are very worried about the higher electricity prices, especially for our ferronickel operations, which consume a large amount of power," said an executive at Sumitomo Metal Mining Co. Ltd., which operates a ferronickel smelter in Kyushu in western Japan.
He pointed out, however, that the company’s other main smelting operations in Shikoku, in the western part of the country, have their own power plant, which is used to supply cheap electricity to the entire group’s operations in the area. "That gives us a big advantage over our competitors, as the impact on higher electricity prices for us there has been minimal," he said.
In contrast, many zinc smelters were forced to shut down or heavily reduce their operating rates last summer in an attempt to mitigate the price hikes imposed by Tepco.
"For other companies there is little they can do, as it is so expensive and difficult to build power plants," he said.
Most of Japan’s nuclear reactors remain shut down after the Fukushima disaster in March 2011, forcing utilities to turn to far more expensive fossil fuels.
The Japan Iron and Steel Federation estimates that the power price increases could add some 13 billion yen ($139.4 million) in costs beyond the 20 billion yen already added by Tepco’s hike last year.
A version of this article was first published by AMM sister publication Metal Bulletin.