China Aluminum went out of the "winter"?

In the past 10 years, the Chinese aluminum industry has experienced the same explosive growth path as the steel industry. Many economic factors have contributed to the dramatic increase in China's steel consumption, and these factors have also stimulated a spectacular increase in aluminum demand.

China is experiencing a large-scale nationwide construction boom, and all other alloy products used in windows, roofs, and building materials require aluminum. The consumption of electronic products such as air conditioners that use a large number of aluminum parts has rapidly increased, and the sales of aluminum canned soft drinks have also become so.

Since 2000, China’s car ownership has begun to rise dramatically, while China is approaching becoming the world’s second largest car market. The use of aluminum in automobiles is increasing. China's aircraft manufacturing industry is also evolving. Airbus announced in October that it will open a factory in China.

As a result, China’s aluminum production has exploded, and for those who have witnessed the development of the Chinese steel industry in the past 10 years, this situation is familiar. According to Macquarie Research, China’s aluminum production was about 1 million tons in 1991 and it has increased to about 8 million tons last year.

However, like the steel industry, the huge demand for aluminum has triggered an even bigger investment boom. Each province in China wants to have its own participants in the major manufacturing sectors. This is one of the reasons. The ability of companies to easily obtain loans from state-owned banks is another factor. Like the iron and steel industry, China's strong corporate dynamism is another factor driving the development of the aluminum industry.

Therefore, although China has become a very important aluminum market, there is still a very familiar dilemma in this area. Over-investment in China will lead to the proliferation of aluminum products in the global market, thus depressing prices and making Chinese companies Become a major exporter?

Facing the prospect of excess capacity similar to that of the steel industry, the Chinese government has found that it has been difficult for local governments to shut down a number of inefficient factories since the 2004 deterrence initiative.

However, from the aluminum industry, the Chinese government’s tightening measures seem to have had a significant effect. Since the beginning of 2003, the price of aluminum has been soaring, helping the Chinese government to curb investment efforts.

This is particularly hard for Chinese smelters because they have fewer long-term supply contracts than companies in other countries. However, spot prices of alumina have fallen sharply since February, allowing some idle capacity in China to restart.

The measures taken by the Chinese government to increase the price of electricity in industries with large energy consumption have also had an impact on aluminum producers.

China’s economic planning authorities are still complaining loudly about the “disorderly” expansion in this area. Although the National Development and Reform Commission (NDRC) stated that 23 projects have been suspended this year, equivalent to 2.47 million tons of smelting capacity, the agency threatened to take more stringent measures. The National Development and Reform Commission is China's higher economic planning department.

At the same time, as the Chinese economy continues to grow at a rate of nearly 10%, aluminum production may maintain its momentum of rapid growth. Marubeni, Japan’s foreign trade company, estimates that China’s aluminum production will increase by 19% this year to 9.2 million tons, while in 2007 and 2008 it will increase by another 13% and 10% respectively. Officials in economic planning agencies could not expect to reduce production levels, but only eased the pace of rapid expansion.

However, the result of all these government initiatives is a real integration within the manufacturer. Heng Kun, an analyst at Everbright Securities, said that the number of Chinese aluminum producers has fallen from a high of 147 in 2003 to about 96 this year.

Overproduction is still a problem - especially for aluminum products with poor quality. However, analysts said that the operating rate of the industry has risen from 66.3% in 2003 to about 82% this year.

“Chinese manufacturers have already passed the 'winter',” said Antaike, a consulting firm for the metal industry in Beijing. "Those companies that have survived will continue and prosper."

Fears that China will make cheap products flood the global market have already found a coalition—the Chinese government.

Faced with the pressure of the rapid expansion of China's trade surplus and the growing demand for electricity from companies, the Chinese government has been trying to limit the export of energy-intensive products such as aluminum. In fact, the Chinese government has recently stepped up efforts to raise the aluminum product export tax rate to 15% in October.

When China’s aluminum production increased significantly in 2003 and 2004, China did indeed become a net exporter of aluminum products. However, the integration of the industry, coupled with initiatives to limit exports, has led to a substantial decline in exports of aluminum products.

The National Development and Reform Commission stated that due to corresponding measures taken, China's aluminum exports have dropped by 20% this year. Marubeni Corporation estimates that before 2008, China’s net exports of aluminum will fall from 600,000 tons this year to about 200,000 tons. Antaike estimates that before 2010, China will become a net importer of aluminum.

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