China's electrolytic aluminum industry development forecast

[China Aluminum Network] Since 2001, when the United States replaced the United States as a major electrolytic aluminum producer, the development of the Chinese aluminum industry has entered the “drive lane” from the “fast lane” and has gone all the way. By 2013, China’s electrolytic aluminum, Alumina production accounts for 44% and 42% of the world's total production. Production capacity is half of the total global production capacity. Concomitant with the rapid development of the industry, there is a serious surplus of production capacity, unprecedented fierce competition, product prices and costs upside down, and the industry prosperity index has entered a long “glacial period”. Chinese aluminum companies are suffering from losses and become the new normal pain...

When will the hard time of aluminum enterprises come to an end? Where can China's aluminum industry exit? Aluminum, what else can it do?

On the basis of in-depth analysis, the author made predictions on the "13th Five-Year Plan" and the future trend of the development of the long-term aluminum industry.

Prediction I: Opportunities still exist

For the next 20 years or even longer, the development of aluminum is still in an important strategic opportunity period. First, the development of China’s economy is a solid foundation for the development of China’s aluminum industry. The growth of China’s aluminum consumption is closely related to the growth of China’s economy. In the past 10 years, the country’s GDP growth rate averaged 9.8%, while the average compound annual growth rate of electrolytic aluminum consumption nationwide was as high as 17.1%, and the latter was 1.75 times that of the former. Even if the Chinese economy enters the shift period in the future, the growth rate of primary aluminum consumption is also above 12%, based on a 7% increase in mid- to high-end growth. The Party Central Committee put forward the goal of "two hundred years". Under the guidance of this goal, the comprehensive deepening of reforms, the promotion of new urbanization, and the advancement of industrialization have all provided a strong impetus for China's sustained economic growth. Second, the market space for aluminum remains broad and long-lasting. In the consumption structure of aluminum in China, construction and transportation are two major industries for consumer aluminum, which together account for more than 60% of the total consumption of aluminum. These two industries are precisely the beneficiaries of greater urbanization. The current urbanization rate in China is 53%. To increase it to more than 75%, at least 20 years of hard work is required, which means that the strong driving force for aluminum consumption will last at least 20 years.

Prediction 2: Westward Slows Down

In the past 10 years, China's electricity prices have been raised 11 times. The cost of electricity for electrolytic aluminum has risen from 25% of the total cost of aluminum smelting to more than 40%, accounting for 50% of the total cost. Such a high cost of electricity severely distorts the competitive landscape of electrolytic aluminum and makes the price of electricity a factor in determining the competitiveness of electrolytic aluminum. Therefore, in recent years, the main investors of electrolytic aluminum have “taken the west exit” and invested capital in the western region to occupy the price of electricity. Statistics show that since 2010, more than 90% of domestic aluminum electrolytic capacity has been increased. In the western region, the westward tide of electrolytic aluminum has been irrevocably escaping. This has refreshed and reconstructed the distribution pattern of electrolytic aluminum. Newer data shows that in the first seven months of this year, the output of electrolytic aluminum in Xinjiang reached 2.275 million tons, replacing Henan as China’s leading producer of electrolytic aluminum.

However, the advancement of electrolytic aluminum is full of temptation and is full of hidden dangers. The first is the limited carrying capacity of the environment. The ecological environment in the western region is very fragile, and the impact of electrolytic aluminum smelting pollution is much higher than that in the central and eastern regions. Once the ecology is destroyed, the damage caused will be catastrophic. It will be extremely difficult to recover, and it will never be repaired. In particular, the pollution of rivers and rivers will directly affect the downstream river basin and affect future generations. Followed by high transportation costs. Under normal circumstances, the production of 1 ton of aluminum has a throughput of about 4 tons. The western region is far from the raw material supply base and far from the market. Raw materials and products need to be transported from a long distance in the central and eastern regions. The transportation cost for producing and selling aluminum per ton is more than 1,700 yuan. The third is the constraint on capacity. In Xinjiang, there is only one railway line from Xinjiang to the mainland. If the output is not large, the transport capacity is still tight. Once the output increases, especially when it comes to the peak of cotton transport, there will be “aluminum cotton” mutual rush. The phenomenon of wagons, the decline in the transport capacity in winter frozen conditions is even more serious. There are also problems with human resources. The lack of skilled workers in the western provinces, especially in Xinjiang, is not only difficult but also costly. Under the combined effect of these factors, the advantage of developing electrolytic aluminum after the western region's electricity price advantage is offset is not as obvious as it seems. This is exactly the fact that the speed of the formation of new electrolytic aluminum production lines in the western region and the benefits after being put into operation are far lower than expected.

The author also believes that if the reform of the power system is substantially promoted and the market is truly decisive for the allocation of electricity resources, it is only a matter of time before electricity prices “break the ice.” As a result, the electricity price advantage in the western region may be reduced to zero.

Prediction 3: Eastwards speeding up

Electrolytic aluminum "Westward" "Eastward", this is an irreversible market behavior. Imagine, under current conditions, if the western (A) electricity price is within 0.3 yuan and the eastern (B) electricity price is above 0.5 yuan, then the production of one ton of aluminum in the western region and the central and eastern regions will have a difference of only 2,800 yuan in electricity costs. Even if the western aluminum plus 1,700 yuan transportation costs, there are still 1,100 yuan cost advantage. Specifically, when the full cost of aluminum production by A is 13,550 yuan/ton, the full cost of aluminum produced by B is 14,650 yuan/ton, and when the price of electrolytic aluminum is 14,000 yuan/ton, A can still make a profit of 450 yuan/ton. , B is a loss of 650 yuan / ton, the result of market competition, must be low-cost production A out of high-cost production B. After two years of wait-and-see and hard support, the high-cost production line can no longer afford to lose money. At present, nearly 5 million tons of electrolytic aluminum production capacity has been shut down. The phenomenon no longer exists, and the domino effect of electrolytic aluminum “retreating from the east” is emerging. As for when to retreat, the author here gives an equation: 350,000 tons - 25 million tons = 10 million tons, depending on the previous number is the existing production capacity, the second number is the market allows the retained production capacity, etc. The number behind the number is excess capacity. Therefore, the author estimates that the withdrawal of electrolytic aluminum production capacity in the eastern and central regions in the future may be as spectacular as the ebbing of the Qiantang River.

Prediction 4: Relocation of Feng Shui

The transfer of production capacity overseas is a common practice in the international oversight of excess capacity. This practice will flourish in the "13th Five-Year Plan" period and will become a new landscape for the development of China's aluminum industry.

First, resource constraints must be shifted. The current situation is that China uses less than 3% of the world's bauxite resources to support electrolytic aluminum and alumina production that exceeds 50% of the world's total production capacity. This situation is neither normal nor sustainable. In 2013, China imported 71.52 million tons of bauxite, which was far more dependent on oil and iron ore than on China, posing a serious threat to the stable and sustainable operation of the aluminum industry. The global reserves of bauxite is very rich, with resources of 55 to 75 billion tons, enough for 300 years. Therefore, the transfer of bauxite production capacity and alumina production capacity overseas is an inevitable choice.

Second, excess capacity needs to move outward. In the “four batches” proposed by the “Guidance Opinion on Resolving the Contradiction of Serious Overcapacity” proposed by the State Council, there is “going out and transferring a batch”. China's electrolytic aluminum production capacity is in excess, but our neighboring countries are in serious shortage. For example, the reserves of bauxite in Vietnam ranked third in the world, and electrolytic aluminum production capacity has been zero; Indonesia's bauxite production is huge, the output of electrolytic aluminum is very small; India's annual per capita aluminum consumption is only 1 kilogram, to reach the world average of 7.2 There is a big gap in kilograms. The transfer of electrolytic aluminum production capacity to these countries has very great room for development.

Third, reducing costs needs to move outwards. Electricity prices have become the main factor restricting the competitiveness of electrolytic aluminum. From a global perspective, most of the major aluminum producing countries in the world use hydropower, and the electricity price is around 0.1 yuan, which is much lower than the electricity price in the western region of China. Therefore, even electrolytic aluminum production lines in western China do not have international competitiveness. This is one of the reasons why China’s electrolytic aluminum has only been imported for a long time. Although the Middle East countries are lacking in bauxite, they are rich in energy and have cheap electricity prices. They have shifted China's electrolytic aluminum production capacity to those places, which have greater cost advantages.

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