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Electrolytic aluminum: walk on the edge of the industry loss
“In the first quarter, the actual aluminum loss in the electrolytic aluminum industry was as high as nearly 80%. The industry has already reached the edge of overall losses.†Cao Yushu, spokesperson for the National Development and Reform Commission, recently disclosed this surprising news. The China Nonferrous Metals Association professor Gao Ganglang Da Zhan said frankly that this year is a more difficult year for the electrolytic aluminum industry. The data shows that in the first two months alone, the electrolytic aluminum industry lost 290 million yuan, an increase of 2.4 times year-on-year. In the first quarter, a total of 11 electrolytic aluminum plants were suspended in China, including a company with an annual production capacity of 45,000 tons. The reason for the loss of electrolytic aluminum companies is simple: the production cost is higher than the aluminum ingot ex-factory price. The cost of aluminum ingot production mainly includes two major blocks. One is the purchase price of raw material alumina, which accounts for more than half of the cost; the other is the price of electricity used to produce aluminum ingot, which accounts for about 1/3 of the cost. According to Lang Dazhan, at present, China's alumina market price offered by Chinalco Group is at 4330 yuan per ton, and the internationally-imported alumina to Hong Kong price reaches 4800 to 4900 yuan. Last year, China produced more than 6.4 million tons of alumina and imported 5.87 million tons of alumina. The import volume was close to the output. China Aluminum's alumina cannot meet the needs of all electrolytic aluminum companies. Many manufacturers can only buy high-priced alumina in the international market. Even the quotation of Chinalco is much higher than before. In 2002, the domestic alumina price was only 2,000 yuan a ton, and the international market price was lower than this, only 200 US dollars per ton. It was precisely because of the good market conditions at that time that most of China’s electrolytic aluminum companies were optimistic that alumina prices would continue to decline, and they would prefer spot trading when buying raw materials instead of signing long-term supply orders. As a result, if alumina prices rise, they can only watch their own production costs rise. The rise in electricity prices also increased costs. Due to power shortages, the nationwide power utility raised the price per unit of electricity by 8 cents last year, and the nationwide increase of power grids has also raised the price of electricity. In addition, the electrolytic aluminum industry is a key industry in the country's macroeconomic regulation and control. Last year, the state cancelled the 2 cents per kilowatt for the 14 large electrolytic aluminum companies in the past, and adopted the self-cultivation technology for the illegal construction and the need to eliminate them. The electrolytic aluminum plant produced will increase the price by 2 to 5 cents per kWh. The domestic electrolytic aluminum prices have fallen all the way since mid-April last year and have fallen by nearly 2,000 yuan per ton so far, and the market price is around 16,500 yuan per ton. Manufacturers want to raise prices, but aluminum processing companies do not buy it, and the market supply is still oversupply and the price cannot rise. The state has also cancelled the export tax rebate policy for electrolytic aluminum, but has imposed a 5% tariff per ton of exports. In fact, the electrolytic aluminum industry will have a much better turnaround than this year next year, but the key is how to pass this year. According to Lang Dazhan, companies in the industry “were all hard-pressed to see who was able to survive.†Many companies do not hesitate to cut production in order to keep the capital chain going. For example, Shanxi Guanlu Company has an annual production capacity of 330,000 tons, but now it only starts 110,000 tons. In the first quarter, the capacity of the electrolytic aluminum industry only played 74%. By 2006, Chinalco's alumina expansion capacity will be effective, and several other alumina plants are also likely to be put into production. The alumina prices are expected to start falling. According to Lang Dazhan, it is expected that by the time of 2008, with the increase of domestic alumina supply, China's electrolytic aluminum industry will show a fundamental improvement. By 2010, Chinalco’s alumina production capacity will increase from 850 tons this year to 11 million tons. Shanxi Jinbei Aluminum and 1.6 million tons of Guangxi Huayin Aluminum, which annually produce 1 million tons of alumina, will also be completed within the next year or two. In addition, China Aluminum and Brazil’s Danshui River’s joint venture in Brazil produces an annual production capacity of 1.8 million tons of alumina, and the China Minmetals Group’s annual production capacity of 1.6 million tons of alumina in the same company in the United States will also be able to supply domestic electrolytic aluminum. The factory provides lower-priced raw materials for production. At the same time, with the current round of macro-control, electrolytic aluminum companies with small production capacity and backward production technology will be basically eliminated, the supply of electrolytic aluminum will be reduced, and prices are expected to increase. "China's demand for aluminum will only increase," said Lang Dazhan. "But again, electrolytic aluminum companies must be able to support this year."