Recently, the State Council issued the "2024-2025 Energy Conservation and Carbon Reduction Action Plan." The plan requires optimizing the capacity of non-ferrous metals. The aluminium capacity replacement must be strictly implemented, and the new capacity for copper and alumina smelting must be strictly controlled. The new capacity for industries such as silicon, lithium, and magnesium should be reasonably planned. The development of the secondary metals industry should be vigorously promoted. By the end of 2025, the proportion of secondary metal supply should reach over 24%, and the ratio of direct alloying of aluminum liquid should increase to over 90%. China's aluminum liquid ratio has increased to about 75% over the past two years. To achieve the target of a 90% aluminum liquid alloying ratio, at least 500,000 mt more aluminum processing products need to be produced each month.
Previously, in order to increase aluminum liquid alloying ratio, many companies actively produced the least customized aluminum billets with the largest market share. The rapid growth in aluminum billet supply, together with less-than-ideal end-user demand, led to a sharp imbalance in the supply-demand relationship in the aluminum billet market, and processing fees once fell to zero It has been proven that the aluminum billet market alone cannot achieve the national aluminum liquid alloying ratio target. To reach the 90% goal, it is necessary to increase the production of aluminum plate/sheet and strip and other aluminum processing products.
The aluminium plate/sheet and strip sector is also facing an oversupply issue. Data shows that since 2021, the operating rate of China's plate/sheet, strip and foil industry has dropped from around 80% to below 70%, exacerbating the overcapacity. However, there are still over 4 million mt of aluminium plate/sheet and strip capacity under construction domestically, which, once completed and put into operation, will inevitably further deteriorate the supply-demand balance. Among the new capacity, over 1 million mt is being invested to increase the ratio of aluminum liquid alloying. Although these new capacities will enhance the proportion of aluminum liquid, it also worsen the oversupply, which may not be conducive to the overall healthy development of the industry.
Increasing the ratio of aluminum liquid alloying is imperative, while the plate/sheet, strip and foil industry has already seen an oversupply, making further capacity expansion inadvisable. SMM believes that in this context, aluminium plate/sheet and strip companies might consider relocating upstream processes such as melting, casting and rolling to areas nearby aluminium smelters. Although this will incur certain relocation costs, it will also bring numerous benefits. The time and cost of relocation are much lower than building new facilities, allowing for a quick and efficient increase in the national aluminum liquid alloying. For the industry, once the pressure of aluminum liquid alloying tasks in various regions is eased, there will be no need to build more aluminium plate/sheet and strip capacity, thereby reducing the competitive pressure brought by industry capacity expansion. For companies, carbon reduction has become a major trend in recent years, and clean, low-carbon green electricity aluminum is bound to be highly sought after. Relocating upstream processes to areas with great potential for green electricity, such as Xinjiang and Inner Mongolia, makes it easier to access green electricity aluminum resources and to develop low-carbon aluminium plate/sheet and strip products.
In August 2022, the Ministry of Industry and Information Technology (MIIT), the Development and Reform Commission, and the Ministry of Ecology and Environment issued a notice on the Implementation Plan for Carbon Peaking in the Industrial Sector, which for the first time set the goal of "increasing the ratio of direct alloying of aluminum liquid to over 90% by 2025." This goal was reiterated in the Implementation Plan for Carbon Peaking in the Nonferrous Metals Industry released in November 2022 and the Energy Conservation and Carbon Reduction Action Plan for 2024-2025 released in May 2024, demonstrating the government's firm stance. However, the demand in the aluminum processing industry is weak, making it difficult to accommodate more new capacity. In this stalemate, relocating upstream processes to areas around aluminium smelters might be a path worthy of exploration for aluminium plate/sheet and strip companies.
