Latest statistics from National Development and Reform Commission showed that electrolytic aluminum output was 9.505 million tonnes increased by 9.7% YoY and the increase rate has risen 4.1% YoY.
Electrolytic aluminum output has been increasing in recent years even though China started trying rein in the industry several years ago. Electrolytic aluminum output was 12.985 million tonnes in 2009, 15.650 million tonnes in 2010 and17.555 million tonnes in 2011.
China has been the largest electrolytic aluminum producer since 2001. The State Council announced they will stop new projects in this field for three years starting in 2009 and on April 20th last year, nine state ministries jointly announced they will stop new electrolytic aluminum projects and cancel preferential policies issued by local governments. Following the announcement, investigation groups were appointed to enforce implementation. 23 projects with 7.74 million tonnes of production capacity and CNY 77 billion of investment were blocked.
Bao Zhongnan VP of Adfaith Management Consulting Inc said that most of the 23 projects have been put back into construction and for the sake of GDP growth, local governments have even started more new projects.
Mr Fan Yanxia an analyst in the nonferrous metal industry said that in 2011, China had more than 25 million tons of production capacity but capacity utilization was only 70%. Low capacity utilization means that the industry has an excess of production capacity, the market doesn't need that much supply.
Excessive production capacity has led to the price of electrolytic aluminum being eroded with average domestic prices of CNY 15460 per ton at the end of July, a decrease of CNY 600 per tonne.
Mr Li Xun an analyst at Mysteel said that there is no room for profit at prices under CNY 16000 per tonne. Even in the western provinces, where electricity is cheaper, companies can barely make ends meet at CNY 15000 per tonne.
Mr Li said that even companies who failed to invest in electrolytic aluminum projects can still acquire land through preferential policies issued by local governments and just holding the land, those companies can profit off the appreciation in land value or engage in other speculative businesses.
Source - Morningwhistle.com
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