Chinese Aluminum Smelters Suffer Overcapacity

SHANGHAI, Jun. 20 (SMM) – 

 

According to China Nonferrous Metals Industry Association (CNIA), aluminum capacity in China reached 26 million mt/yr in 2012, against 20.27 million mt in output. The capacity utilization rate was 78%, the highest level since 2008. 

 

Aluminum prices have been below production costs since August 2011. In 2012, aluminum prices averaged RMB 15,636/mt, compared with RMB 16,200/mt in average production costs, incurring losses on 93% of aluminum smelters. According to the 12th Five-Year Plan for Nonferrous Metal Industry, China’s aluminum output should reach 24 million mt at the end of the 12th Five-Year period. Zhao Xiufu, Deputy Director of Reform & Development Center of the Aluminum Corporation of China, said the output target stated in the 12th Five-Year Plan for Nonferrous Metal Industry has now been reached earlier, with 30% of aluminum capacity in surplus.     

 

Production costs of aluminum smelters consist largely of power, alumina, prebaked anode and labor. Power accounts for over 50% of aluminum production costs. Rising power costs are one of the reasons behind the losses suffered by aluminum smelters in Henan. In fact, almost the entire aluminum industry is in the red.  

 

Overcapacity is another reason behind the losses of aluminum smelters. The Chinese economy is plagued by excess capacity, such as high energy consumption and high pollution aluminum industry.  

 

Back in April 2011, nine departments of the State Council including the Ministry of Industry & Information Technology (MIIT) and National Development & Reform Commission (NDRC) jointly issued the Emergency Notice on Constraining Overcapacity in Aluminum Industry.The notice requires immediate call-off of aluminum projects under planning. One month later, the MIIT issued a notice urging elimination of 600,000 mt/yr in outdated aluminum capacity.     

 

In order to solve the problem of overcapacity in China, output should be constrained within a rational level so that capacity growth can match that of consumption.  

 

The key to control output lies in local governments. First, barriers should be set higher for aluminum projects in terms of land use, financial strength and environmental standards. Second, local government must strictly review and approve aluminum projects. Wen Xianjun, Deputy General of the CNIA, proposed that local governments should be punished for approving unqualified aluminum projects. (Edited by SMM)