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China: Aluminum Fabrication Industry
Interfax News Service, Ltd. , May 2008, Pages: 83
Will China be the world’s new green aluminum fabricating base?
Growing demand for aluminum products in China is driving the rapid expansion of aluminum fabricating capacity. China's aluminum fabricated product output rose significantly in the past five years, at an average annual growth of 34.1 percent, and output hit 12.4 million tons in 2007, according to statistics released by China’s National Bureau of Statistics.
The statistics indicate that China became a net exporter of aluminum foil in 2004, and will become a net exporter of aluminum strip and plate this year, suggesting that, in addition to supplying its own growing demand, China is well positioned to supply the world with aluminum products.
The thriving aluminum fabricating facilities in China, including cross-national joint ventures and solely foreign-owned companies, which involve leading players like Aloca and Rio Tinto Alcan, reinforce China’s position within the industry. Can the aluminum fabricating industry, based on its ability to promote energy conservation and waste reduction, see a new green base in China? How will the consolidation of the aluminum fabricating sector in China enhance its competitiveness? What concerns may arise over China’s increasing fabricating capacity and export volume?
Room for development
Being the world's largest aluminum producer and consumer, China's aluminum industry has many opportunities to expand into the domestic downstream fabricating sector. In the transportation market, for example, only 19 percent of domestic aluminum production is used for vehicle production, which is far less than the average 30 percent in developed countries. The figure is expected to rise in the next five years.
China's per capita consumption of aluminum plate and foil averages at 0.4 kilograms and 0.2 kilograms respectively, compared with the world's average consumption levels of 1.7 kilograms and 0.3 kilograms, indicating China's great potential for aluminum demand growth.
The major markets for aluminum products are transportation, power grid, packaging, building construction, durable consumer goods and machinery manufacturing. To meet the demand of China's urbanization progress, the country's investments in public transportation, infrastructure construction and power grid have grown at an unprecedented rate.
Aluminum products are increasingly welcome for their light weight, fuel efficiency, low emissions and recycling features. The industry will likely move to high value-added product development and production. Despite growing capacities nationwide, the country still lacks high-end aluminum products and advanced technology R & D capability, while it faces overcapacity in low-end aluminum fabricated products.
As of Feb. 26, 2007, China’s proposed large-scale passenger jet project won approval from the State Council. The project will require an initial investment of over RMB 50 billion ($7.14 billion) to RMB 60 billion ($8.57 billion), which would in turn promote the R & D capability of high-end aluminum products.
In addition, the self-developed continuous hot-rolling line and ultra-thin aluminum foils in the second half of 2007 have also made it possible for China to break away from relying on imported techniques and products.
China's total aluminum fabricating capacity is expected to reach 25 million tons by 2012, 54.32 percent up from 2007. The Aluminum Corporation of China (Chinalco), China's largest aluminum and alumina producer, is expanding its downstream fabricating business. Chinalco plans to add 1.05 million tons to its current capacity, to reach 2.17 million tons by the end of 2010.
Market pitfalls
China's aluminum fabricating sector faces risks of soaring production costs, restrictive governmental polices, slowing world consumption and fears of economic recession.
The aluminum industry is one of China’s major industrial users of electricity, and the electrolytic process is the only commercially proven method of producing aluminum. In China, one ton aluminum production required between 14,000 kilowatts and 15,000 kilowatts.
The Chinese government raised electricity prices for aluminum smelters at the end of last year, aiming to curb overheated investment in the aluminum smelting sector. The new power price policy increased aluminum prices remarkably, and squeezed profitability for downstream aluminum fabricators.
The National Development and Reform Commission (NDRC) released several guidelines for aluminum industry structure optimization in 2005 and 2006, emphasizing consolidation among aluminum fabricators, technology innovation and upgrades in the sector, as well as developing high valued-added aluminum alloy products.
In addition, so as to curb excessive growth of aluminum and aluminum product exports, China currently levies a 15 percent export tax on primary aluminum, aluminum bar and rod, and canceled an 8 percent VAT rebate on aluminum profile export in July 2007. However, it has retained 13 percent VAT rebates for aluminum plate and foil exports. China was a net exporter of aluminum products in 2007. Its exports totaled 1.853 million tons of aluminum fabricated products that year, up 49.5 percent from 2006. Imports hit 689,944 tons of aluminum products that year, up 0.6 percent year-on-year.
The rapid growth of aluminum product exports has caused concern from the central government, which is cautious about overloaded trade surplus. The implementations of more restrictive export policies for the sector could only be a matter of time. Profitable aluminum product exports have triggered a wave of investment in new aluminum fabricating lines, and have caused worries for domestic oversupply in the short term.
Renminbi appreciation and the slowdown of aluminum consumption in western countries amid recession fears is putting the most pressure on China’s aluminum product exports.
FREE UPDATES
The CHINA ALUMINUM FABRICATING INDUSTRY 2007-2012 report will be updated twice a year - once in January and once in August. The updates will be delivered to you FREE OF CHARGE.
The updates will include new policy changes, new statistics including production, import & export, supply & demand, new projects, forecast for supply and demand fundamentals for the next half year as well as forecast for industry trends and key factors to watch for:
- Will China release tougher export tax policies on aluminum products, such as al tubes? Any influence on planned processing projects due to any imminent tariff adjustments?
- How will the increasing raw material and energy prices squeeze al producers, thus affecting al processing players?
- How would the world economic uncertainties and China's cooling economic growth impact investment and demand in the aluminum processing industry?
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