How is China s refining and smelting business restructuring to meet economic, state and trade imperatives? SunSirs Commodity Data Group, China

Transcription

1 How is China s refining and smelting business restructuring to meet economic, state and trade imperatives? SunSirs Commodity Data Group, China Chief Editor Liu Xintian

2 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

3 Ⅰ. New smelter developments in China where, how much, when and at what cost? New capacity reached 35 million tons by the end of It mainly comes from Xinjiang. And the production of Xinjiang aluminum ranks first. The capacity of Xinjiang aluminum is 6 million tons in 2014,and it is expected to be about 6.5 million tons in The advantage for the new capacity lies in low costs. The average costs of production are about yuan/ton. Because there are rich coal resources in Xinjiang, Inner Mongolia, etc so the electricity price is about 35% lower than the national electrolytic aluminum industry price (0.4 yuan/kwh). And there are a large number of smelters which have their own power plants(0.24 yuan/kwh).

4 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

5 II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? Logistics: The average costs of production are about yuan/ton. By calculating that 1.95 tons of alumina need to be transformed in and a ton of refined aluminum out to make a ton of aluminum, even considering freight is 1500 yuan/ton, compared with the mainland(costs about 13000yuan/ tons), Xinjiang generally still has a cost advantage of more that 1500 yuan / ton. Raw materials: Compared with the current supply of alumina, actual demand for alumina which converted in accordance with the requirements of 1.95 tons of alumina for making a ton of electrolytic aluminum is less than it, so there are sufficient supplies.

6 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

7 III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? Alumina:Adequate supply From the end of 2013 affected by factors such as the Indonesian ban, cutting production of China's electrolytic aluminum etc., the operating rate of alumina continued to decline. But affected by factors such as source dispersion of bauxite, the resumption of production, new capacity etc., the operating rate continued to rise in the second half of 2014, even to a very high level of 90%. Annual growth rate of China's alumina supply is over 10% so there are sufficient supplies.

8 III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? Electrolytic aluminum Outside of China, global electrolytic aluminum production capacity is basically stable. But China s electrolytic aluminum production capacity reached million tons by the end of 2014, an increase of 15.07%. It is expected to be close to 40 million tons by the end of China's capacity growth is significantly higher than the global average growth rate. Chinese electrolytic aluminum production capacity as a proportion of world capacity is climbing quickly, and is even more than 50%. 90% of the world's annual new capacity comes from China.

9 III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? In addition to China,global electrolytic aluminum production is basically stable at around 28 million tons. But China s electrolytic aluminum production reached million tons by the end of It is expected to be close to 30 million tons by the end of China's production growth rate remains at around 10%,and this makes global production continue to go higher. Proportion of China's electrolytic aluminum production accounted for the world are climbing quickly, even more than 50%. And the proportion is still continuing.

10 III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? In early 2014,major aluminum enterprises announced plans to cut production. The tonnage was about 2 million tons, so operating rates fell to 83%. Starting in May, with the government electricity price support, Guizhou, Gansu and other places resumed production.the operating rate rose to 87%. China's overcapacity problem is serious, and is continuing.

11 III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? Downstream demand:weak No improvement in real estate Real estate industry accounts for about 30% of China's aluminum consumption. In recent years, the amount of floor space sold continues to decline, and commercial housing stock continues to rise. In 2014,China's commercial housing sales area and sales showed "negative growth. Commercial housing area for sale was million square meters, an increase of million square meters. And in the first half of 2015, commercial housing area for sale was million square meters, an increase of 3.9%.So China's real estate industry will be difficult to pick up in 2015.

12 III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? Low speed growth in automobile sales and marketing The transportation industry accounts for about 25% of China's aluminum consumption. In recent years, production and sales of cars has grown slowly. In 2014, production and sales were million and million respectively, an increase of 7.26% and 6.86%, but the rate of growth continued to fall. In the first half of 2015, China's auto production and sales were million and million, up 2.64% and 1.43%, so the increase decreased obviously.

13 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

14 IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? Global bauxite resource distribution is relatively concentrated. Guinea, Australia, Vietnam, Brazil, Jamaica: these five countries reserves occupy 80% of the total, while China s bauxite reserves only account for 3%. China s bauxite mines are growingrapidly, but still can t meet domestic demand. So it heavily depend on imports.

15 IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? After the ban on the export of bauxite in Indonesia, a large number of enterprises are not shutting production due to the shortage of raw materials. More than two years is adequate for the Chinese aluminum enterprises to respond. They use the methods such as pre-emptive imports, source diversification, feedstock replacement, overseas captive resources etc.to avoid "mine panic. Pre-emptive imports Source diversification Feedstock replacement Overseas captive resources

16 IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? Pre-emptive imports After the ban on the export of bauxite in indonesia in 2014, domestic enterprises were affected by the supply of bauxite. Total imports were indeed lower, and fell to 3 million tons per month, but domestic enterprises imported more than 70 million tons of bauxite to pre-empt the ban in 2013.

17 IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? Source diversification Then China's enterprises quickly diversified their sources of bauxite. Australia has become a new major source, and other countries with bauxite have begun to enter China such as Malaysia, India, Fiji, Brazil, Ghana, Dominica, Guinea, etc. With the increase in new sources, imports of bauxite are gradually recovering.

18 IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? Feedstock replacement: increased imports of alumina, a partial substitution for bauxite With a sharp decrease in imports of bauxite, production and imports of alumina are significantly improved by the substitution effect,and import growth rate is as high as 40%.

19 IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? Overseas captive resources Overseas resource distribution of electrolytic aluminum enterprises Enterprise Location of the project Capacity of alumina(million tons) Aluminum Group Indonesia 2 Weiqiao Group Indonesia 2 Jinjiang Group Indonesia 2 Nanshan Aluminum Indonesia 2 Guangxi Investment Group Indonesia 1.6 Zhongse Stake Laos 1.2 Yunlv Stake Laos 1 Hainan Joint Business Indonesia 1 In order to ensure the supply of raw materials for domestic electrolytic aluminum, domestic enterprises also accelerated the distribution of their overseas resources. Most of the alumina projects are located in Indonesia at present, few located in Laos.

20 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

21 V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? Task and completion for China s elimination of outdated production capacity Time Task(Million tons) completion(million tons) In fact, overcapacity has been accompanied by the electrolytic aluminum industry these years. Although the government has the challenging task of closing outdated production capacity due to the electrolytic aluminum price, the impact is limited. Relative to four to five million tons of new capacity a year, the elimination of hundreds of thousands of tons of outdated production capacity in China to improve the aluminum overcapacity is too little.

22 V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? For many years, in order to protect employment and guarantee GDP, local government has intervened in the industry. When the electrolytic aluminum enterprises face a loss, in order to prevent the shutdown or relocation of enterprises, the local government takes the electricity price subsidies, carries out large direct power supply and other means to support the electrolytic aluminum enterprises. This allows a lot of aluminum to keep operating, and aggravates the imbalance of supply and demand in the industry. The new government is changing the traditional mode of economic growth. The Ministry of Industry no longer approves construction of new electrolytic aluminum projects. The measures such as publishing aluminum specification list, implementing differential electricity prices etc. are expected to accelerate the eliminate of outdated production capacity. But the pace of reform is limited, so the problem of overcapacity is very difficult to have a significant improvement, and even that may be even worse in In recent years, in order to promote the technological progress of electrolytic aluminum enterprises, the government has reduced energy consumption, and implemented a ladder pricing policy for electrolytic aluminum enterprises. With the increase in electricity prices, the cost of electrolytic aluminum enterprises increases significantly. Then companies suffer increasing losses, which means some of the enterprises may be eliminated, so electrolytic aluminum industry must accelerate the reshuffle.

23 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

24 VI. Analysis of China s macroeconomic trend Aluminum Price Index Nonferrous Metals Industry Price Index The Nonferrous Metals Industry Price Index is at a six-year record low for at present. Affected by reprieve of the dollar, the falling oil price, high inventories of basic metals such as copper, aluminum, nickel, etc, and weak downstream demand, the overall market is in a downward channel.

25 VI. Analysis of China s macroeconomic trend BCI- Bulk Commodity Index BPI- Bulk Commodity Price Index

26 VI. Analysis of China s macroeconomic trend Aluminum Confidence Index CCI- Commodity Confidence Index

27 VI. Analysis of China s macroeconomic trend Summary The upstream and downstream aluminum industry chain are all subhealthy, even sick. The aluminium smelting industry in China is in a difficult situation. And it s difficult to have a turn for the better within three to five years. China will dominate global aluminum market and industry development.

28 Main content Ⅰ. New smelter developments in China where, how much, when and at what cost? II. The shift north and west what does this mean for the new low-cost smelters in terms of logistics, raw materials and market accessibility? III. As smelter capacity grows, what does this mean for the alumina:aluminium balance? IV. Is a shortage of bauxite looming? What strategies are refiners adopting to secure bauxite, especially in light of the Indonesian ban? V. What impact will economic reform, energy policy and environmental controls have on the country s smelting sector? VI. Analysis of China macroeconomy trend VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016

29 VII. Forecast of Aluminum Market Tendency in the last quarter of 2015 and in 2016 High electricity price,serious overcapacity, weak downstream demand, for these three big mountains of the electrolytic aluminum industry, it is difficult for the market to get out of the downturn in the short term So we expect that the price of aluminum will still be down in the last quarter of 2015 and in Even if the price can rebound due to moves of enterprise's cutting production, that still does not change the big direction for the aluminum price to continue to slide down. Paying attention to the process of removing capacity of China's aluminum industry, if the enterprise and local government initiatives to shut down or replace the uncompetitive basic capacity is successful, the domestic aluminum prices will rebound. If not, aluminum prices will continue to trend down.

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31 Lampson Liu Chief Editor, SunSirs (China Commodity Data Group) Tel: Fax: Mobile: MSN: