Aluminium industry faces challenges (China Daily) Updated: 2005-03-31 08:42
China's aluminium producers will face tough times this year as a result of
mounting costs and unfavourable government policies, although the sector's
runaway investment has been brought under control, according to industry
officials and analysts.
Domestic aluminium manufacturers will continue to suffer shortages and high
prices of alumina -- the main raw material -- and electricity this year, said
China Non-Ferrous Metal Industry Association President Kang Yi.
China's aluminium exports will be controlled by government policies, which
will intensify competition in the domestic aluminium market, Kang said.
China removed an 8-per-cent tax rebate at the beginning of this year, and
reintroduced a 5-per cent tariff on aluminium exports.
The nation cut the aluminium export tax rebate to 8 per cent from 15 per cent
at the beginning of last year.
These hardships and the resulting heavy losses will force more aluminium
producers, especially small firms, out of business, warned Pan Jiazhu, the
association's vice-president.
"As a result, the growth of China's aluminium output will fall sharply this
year," Pan said.
Domestic aluminium output will rise by 6 per cent to around 7 million tons
this year, he predicted.
This will be the mildest year-on-year growth registered by China's aluminium
output since 2000.
Last year saw China's aluminium output grow 20.3 per cent to 6.67 million
tons, according to the association's statistics.
The figure meant China remained the world's biggest aluminium producer.
Profligate investment in the aluminium sector was cooled down last year
thanks to the government's macro-economic controls, Kang said.
Investment in the sector dropped 18 per cent year-on-year to 18.25 billion
yuan (US$2.2 billion) in 2004.
Last year, 33 of China's small aluminium plants were closed due to heavy
losses.
Construction of 1.14 million tons of aluminium production capacity was halted
in China last year.
The nation's annual aluminium production capacity totalled 94.7 million tons
by the end of 2004.
Analysts warned of wider financial risks if many aluminium manufacturers go
bankrupt or are closed.
"Most of China's aluminium producers expanded aggressively in recent years
with bank loans," said Wang Feihong from Antaike Information Development Co Ltd,
a Beijing-based metal industry consultancy.
"The risks of bad loans would climb greatly for banks if many aluminium
plants closed," Wang pointed out.
The aluminium sector's profits stood at around 2.7 billion yuan (US$326
million) last year, only up from 2.3 billion yuan (US$278 million) in 2003.
"The profits were mainly created during the first half of last year. Most
aluminium producers either had meagre profits or even made a loss during the
second half of 2004," Wang added.
The combined profits of the aluminium and alumina sectors surged 68.2 per
cent year-on-year to 10.68 billion yuan (US$1.29 billion) in 2004, mainly thanks
to the alumina sector's bumper profits.
"Prices of alumina in China will remain bullish and even enjoy slight growth
this year due to short supply," Pan said.
Nearly half of China's alumina demand is met by imports, Pan pointed out.
China imported 5.88 million tons of alumina last year, an increase of 4.8 per
cent year-on-year.
The nation's alumina output was the second-highest in the world, having grown
14.53 per cent year-on-year to 6.99 million tons in 2004.
Despite strong demand, domestic alumina output will not increase greatly this
year due to bauxite shortages, Pan said.
He forecast China's alumina output will reach some 7.7 million tons this
year, up 10 per cent from 2004.
Wang from Antaike said the highly energy-consuming aluminium sector's power
costs will further rise this year due to increasing electricity prices.
The price of electricity used by China's aluminium plants rose 0.04 yuan
(0.48 US cent) to 0.36 yuan (4.35 US cents) per kilowatthour last year,
increasing aluminium production costs by 600 yuan (US$72.5) per ton.
Government officials said recently that there will be little let up in
China's electrify shortages and electricity prices will continue to rise this
year due to rising coal prices.
China's removal of its aluminium export rebate will increase domestic
aluminium manufacturers' export costs by 600 to 1,000 yuan (US$72.5-120.7) per
ton, according to Antaike's estimates based on international aluminium prices at
the beginning of this year.
The resumption of the 5-per cent tariff on aluminium exports will also
increase domestic aluminium producers' export costs by 770 yuan (US$93) per ton.
Antaike predicted China's aluminium exports will drop sharply this year as a
result of the two policies.
The nation's net aluminium exports stood at 1.68 million tons last year, up
34.83 per cent year-on-year.
However, Pan said the ongoing difficulties will be of long-term benefit to
China's fragmented aluminium sector.
"The difficulties will accelerate the sector's reshuffle and technical
upgrading," Pan said.
There are still 133 aluminium plants in China, although many small ones were
shut down last year.
Twenty-three provinces in China had aluminium plants last year.
In 2004, there were 23 aluminium manufacturers in China, each with an annual
output of more than 100,000 tons. The number was up from 16 in 2003.
These 23 aluminium producers accounted for 56.7 per cent of China's total
aluminium output last year, up from 47.6 per cent in 2003.
Last year, the sector witnessed a slew of mergers and acquisitions led by
Aluminium Corporation of China Limited (Chalco), the nation's biggest aluminium
and alumina group.
Chalco paid 770 million yuan (US$93 million) last year for a 28 per cent
stake in Lanzhou Aluminium Co Ltd in northwestern China's Gansu Province.
Three producers of aluminium and other non-ferrous metals in northwestern
China's Shaanxi Province, central Hubei Province and eastern Fujian Province
were also swallowed up by Chalco last year.
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