Electricity Shortage Hits Metals Output
Friday March 21, 12:41 pm ET
Barclays: Structural Electricity Shortages Contribute to Making Commodity Rally Long Term
NEW YORK (AP) -- A global shortage of electric generating capacity is dramatically curbing world metal production, a trend expected to continue for years and result in sustained commodity price hikes, a report by Barclays Capital says.
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Based on recent energy constraints, "lost base metals production is estimated to mount to just under 1 million tons," according to the report, which was released Thursday.
"We have identified five countries that combined account for over 10 percent of base metals production, and a large portion of precious metals production where power rationing may be close to being enforced." Those countries, South Africa, Brazil, Chile, Indonesia and Thailand, have "critically low levels of power reserves."
The report concludes that, to the extent that metals prices are supported by electric generation shortages, the current commodity rally is structural -- not cyclical.
Aluminum, the production of which is massively energy intensive, has been the hardest hit by the worldwide shortage of electric generating capacity.
Barclays estimates that this year alone, shortages of electricity have caused the loss of nearly 800,000 tons of aluminum production.
Among precious metals, the hardest hit is platinum, most of which is produced by South Africa. Barclays estimates that recent energy constraints in that country already have curbed global platinum output by some 9 percent.
"Power capacity is falling in four additional countries (besides the five already mentioned), which currently account for one-third of both base and precious metals production. In these countries demand growth has caught up with generating capacity and although power availability may not be an immediate issue, if supplies are not brought to the market in a timely manner they may be forced to power ration."
Those four countries, Peru, China, India and Australia, could face power rationing if "power supplies are not brought to market in a timely manner."