At China Aluminum Week (CAW) in South China's Guangxi Zhuang Autonomous Region last week, experts from the global aluminum industry discussed the future of China's aluminum industry and pointed out that finding new applications for the nonferrous metal could alleviate the country's ongoing overcapacity problem. However, they acknowledged that progress won't be easy.
The domestic aluminum industry will be able to secure a better future through new applications of the widely used industrial metal such as furniture, industry stake holders said at the China Aluminum Week (CAW) conference last week in Nanning, capital of South China's Guangxi Zhuang Autonomous Region.
The adoption of new uses for aluminum, which is used in aircraft, automobiles and mobile phones, as well as many other kinds of products, is seen as a way to allay the overcapacity problem in China, which produces about half of the world's electrolytic aluminum, as the country attempts to reorganize its bloated industrial sector.
Overcapacity
To cope with the collapse in global commodity prices in the fourth quarter of 2015, when the price of aluminum sunk to its lowest in two decades, domestic producers of electrolytic aluminum permanently shut down smelters with a combined production capacity of 3.36 million tons, according to media reports.
"In 2016, due to multiple factors such as the implementation of supply-side structural reforms and the industry's own measures to curb output, the supply-demand dynamics in the domestic market have improved," Chen Quanxun, chairman of the China Nonferrous Metals Industry Association, said at CAW on Wednesday. "Product prices have recovered and the industry for now has reversed losses."
Over the first nine months of the year, the country churned out 43.25 million tons of aluminum products, up 13.3 percent year-on-year, data from Beijing-based research firm Beijing Antaike Information and Development Co showed.
Investment in the industry also cooled, falling 9.7 percent from the January-September period in 2015 to 162.85 billion yuan ($24 billion).
However, experts attending CAW remain optimistic about domestic demand for aluminum, though they acknowledge that there is still a great deal of work to do.
"As the country beefs up regulations for overloaded heavy trucks, more truck makers will consider using more aluminum to make lighter vehicles, and more drivers will consider buying these trucks," said Lu Dongliang, executive director of State-owned Aluminum Corp of China. "This alone will potentially add millions of tons of new demand."
Lu added that aluminum has now entered people's life at a deeper level in the form of aluminum-made furniture, decorations and household goods, boosting potential demand for the metal exponentially.
"This means aluminum product output has the potential to double from its current level of about 40 million tons without leading to a supply glut. And if the new demand is unleashed, China does not need to export aluminum products," Lu said.
China's aluminum consumption grew by around 8 percent in 2015, much faster than the 1.5 percent growth rate of the overseas market, according to Antaike.
Trade troubles
Due to a high tariff, Chinese companies do not export electrolytic aluminum, though they do export some aluminum products.
In 2015, China's exports of aluminum products to the US accounted for 11.7 percent of its total exports, while imports from the US for the same items accounted for 7 percent of its total imports, according to Antaike, citing customs data.
Still, there has been some foreign criticism of China's aluminum industry.
During the G20 Summit in Hangzhou, capital of East China's Zhejiang Province, in September, China and the US reached a consensus to jointly tackle global aluminum overcapacity.
Industries suffering from frequent trade disputes are usually infested with disorderly expansion and duplicated projects, so long-term planning and guidance are needed to take on the mismatch in supply and demand, vicious price competition and lack of innovation, Liu Danyang, deputy director of the Ministry of Commerce's trade remedy and investigation bureau, said at CAW.
Experts said aluminum consumption is connected to people's standard of living.
"China's per capita aluminum consumption has been growing rapidly and has surpassed the world's average, yet it still lags behind that of developed countries," said Xiong Hui, chief analyst with Antaike at CAW. "For China to reach a consumption level similar to that of the US, another 507 million tons of the metal needs to be produced or imported in the country."
Xiong forecast that China's per capita aluminum consumption will peak in 2022 or 2023.
Bottlenecks
However, electrolytic aluminum consumption depends largely on making downstream products that consumers want to buy, experts said.
"China's semi-fabricated industry is growing very rapidly. But as in any emerging markets, there are certain technological barriers they have to get past," said Gregory Wittbecker, vice president of Alcoa (Beijing) Trading Co Shanghai Branch. "We have seen the same thing historically in places like Japan - as they emerged, their economy grew and they went through certain stages of technological sophistication."
As Chinese semi producers get more technologically sophisticated, they will be able to offer more products wanted by global consumers, Wittbecker told the Global Times in an exclusive interview on Thursday.
Wittbecker noted that products like aluminum furniture are on the low end of the value chain, unlike aluminum automobile parts, which engineers put a lot of effort into.
To break into the higher end of the value chain, some companies have opted for mergers and acquisitions. State-owned conglomerate Guangxi Investment Group Co chose to set up joint ventures with private companies to leverage on their brands and vitality, said Feng Liujiang, the company's chairman.
Expectations for overseas acquisitions have been building up as Chinese aluminum companies venture into businesses higher on the aluminum value chain.
In August, Chinese aluminum giant Zhongwang USA LLC announced it would buy high precision aluminum product maker Aleris Corp in a deal worth $2.3 billion, so far the biggest entry by a Chinese company into the US aluminum industry, Reuters reported.
"We are adding 200,000 tons of automotive plate capacity, and we think the capacity is enough," Song Changming, general manager of Shandong Nanshan Aluminum Co, told the Global Times on Thursday at CAW. "Before 2020 we will focus on the domestic market, so there is no need to make overseas acquisitions. But we don't rule out the possibility."
The Shanghai-listed firm makes aluminum products for planes, ships and bullet trains. Its customers include US-based Boeing Co and Chinese high-speed train manufacturer CRRC Corp.