Electrolytic aluminum is an extremely important industrial raw material. Aluminum and aluminum alloy are widely applied in many industries including construction, electronics and electric power, transportation, durable goods and packaging.
According to CRI, China is the world’s largest electrolytic aluminum producer with output volume accounting for over half of the world’s, and it has remained rapid growing in these years. The CAGR of China’s electrolytic aluminum output volume was 13.2% during 2006-2016 while that of other regions in the world declined slightly in the same period. China’s output volume of electrolytic aluminum was 31.873 million tons in 2016, up by 1.3% YOY.
Annual import and export volume of electrolytic aluminum is quite low, which can be ignored compared to the domestic output volume. Terminal consumption of electrolytic aluminum is mainly centralized in construction & real estate, electronic & electric power and transportation while other industries such as machinery manufacturing and packaging also consume aluminum.
The cost of producing electrolytic aluminum mainly includes electrolytic aluminum, electric power, carbon anode, fluoride salt, labor cost, manufacturing cost and depreciation expense, of which electrolytic aluminum and electric power cost most, together accounting for 60-70%. In addition, freight influences the prices of aluminum greatly in market circulation.
As one of the core factors influencing market competition of electrolytic aluminum industry, electric prices have great impact on enterprises’ competitiveness. Apart from that, electrolytic aluminum industry is a large consumer of electric power, the cost of which accounts for about 30-40% of the total cost. Quite a few electrolytic aluminum enterprises build their own power plants (most are using thermal power) in order to reduce cost, causing serious environmental pollution.
CRI analyzed that overcapacity issue was serious in China’s electrolytic aluminum industry in the past few years. Aluminum prices has declined since May, 2011, and it almost dropped by half until November, 2015. Overcapacity was not mitigated though China’s aluminum prices rebounded slightly later. Electrolytic aluminum industry is an energy-intensive sector with low barriers to entry and large consumption of electric power. What’s more, part of the electrolytic aluminum enterprises build private power plants which are mainly using thermal power, and these enterprises are characterized by extensive management and cause environmental pollutions easily.
China’s electrolytic aluminum capacity exceeded 44 million tons by the end of the first half of 2017, the growth rate of which is clearly higher than that of demand, showing the further exacerbation of overcapacity.
The Chinese government formulated some policies to control the blind expansion of aluminum industry while the effect was little. In April, 2015, the Ministry of Industry and Information Technology of PRC issued further plan of capacity replacement and require to eliminate outdated capacity so as to bring new capacity. However, during 2015 and 2016 when the policies were implemented, the national electrolytic aluminum capacity surged by over 10 million tons. Policies must be enforced to eliminate overcapacity for the effect was far bellow expectation.
The State Council of China released “Catalogue of Investment Projects Approved by the Government (2016)” and emphasized again that elimination of capacity need to be carried out in industries with serious overcapacity issues including electrolytic aluminum industry, and also declared that any department cannot file projects involving new capacity in the name of anything or in any way. Under the situation of reducing capacity and stock, the policy can not only eliminate outdated capacity, but also limit growth of the new.
CRI estimates that growth rate of China’s economy will remain above 6% during 2017-2021, the urbanization level will keep rising, real estate industry will keep developing and other industries like electric power, transportation, packaging, electronic and consumer goods will be also in a growing trend, which all will promote China’s electrolytic aluminum industry.