SHANGHAI, Jun. 27 (SMM) – SMM survey found that orders at small and medium construction aluminum extrusion producers fell in June with faltering consumption. Large producers, in contrast, reported ample orders.
Generally speaking, consumption of construction aluminum extrusion is driven by construction projects and distribution networks. Decoration companies place orders with aluminum extrusion producers after securing contracts from real estate developers. Transactions between aluminum extrusion producers and distributors are largely on a retail sale basis. Distributors with strong financial strength also receive orders from decoration companies or property developers.
Two factors are behind the sharp contrast between orders at large producers and SMEs.
First, with liquidity in all sectors tightening, a growing number of aluminum extrusion producers are forced to sell products to decoration companies or property developers but receive payment only after developers have sold their houses or decoration companies obtain accounts receivable. The accounts receivable for one construction project owed to aluminum extrusion producers can range from several RMB 10 million to several RMB 100 million. As a result, construction project orders are often booked by larger producers who have more capital.
Second, aluminum extrusion producers in Guangdong have established distribution sales networks across south China, and some stretch their networks further to northeast, northwest, and north China. Guangdong used to be China’s major aluminum extrusion exporting hub, but exports by large aluminum extrusion producers in the province now account for less than 10% of their output as they now prefer to sell domestically. SMEs, on the other hand, have smaller sales networks and face strong competition from large ones, causing them to receive fewer orders.
With margins in aluminum processing industry becoming thinner and thinner, financial strength, sales networks and energy-saving are playing an increasingly important role in processors’ survival. SMM believes the contrast in orders received by large producers and SMEs will become even sharper, which will squeeze those with weaker financial strength out of the market.