China surfs the aluminum wave

By far one of the most versatile metals in the world, the diversity of aluminum usage is phenomenal. Yet it is a metal that never caught the fancy of the world commodity markets. Its price has remained relatively stagnant at around $2,100 per tonne since the '80s. Where copper prices have tripled over the same timeline, aluminum that is found in everything from soda cans to aircraft is an industry in decline. Industry leaders in the West have seen their collective fortunes fade from $200bn a year some five years ago to an estimated $65bn currently. The industry is in the midst of retrenchment and consolidation. Whereas Western aluminum powerhouses are in a state of decline, China is forging ahead with ever-increasing production capacities that defy predictions.

There has been no dearth in demand for this unsung hero of a metal. According to International Aluminum Industry (IAI), production increased from 1.5million tons to 44million tons over six decades from 1950 to 2011. By virtue of its composition, aluminum can be shaped into any form. It is lighter than steel and cheaper than copper. Then why is it that the global aluminum industry, with the exception of China in decline today? One of the reasons can be traced to the fact that supply has kept pace with rise in global demand.

Secondly, booming global production resulted in a glut of inventories -- an estimated 10million tonnes of excess aluminum are stocked globally.

Third, aluminum production is hugely energy-intensive. Rising energy costs have led to an increase in cost of production whereas price per tonne has remained relatively constant over the past few decades. Then the unforeseen global financial meltdown arrived to knock the bottom off commodity prices and brought about a halt in demand.

While Western producers scramble to curtail production like BP Billington, 6th largest aluminum producer that has decided not to make fresh investments to companies like Rio Tinto that is diversifying from aluminum production to mining bauxite; a basic element in aluminum production -- China strides ahead with production.

Indeed, China saw its production jump from 2.8million tonnes in 2000 to 17.8million tonnes today, making it the undisputed leader in aluminum. And while Western aluminum-industry pundits downplayed China as a minor irritant in 2005, the country has managed to increase energy efficiency in this energy-inefficient production process to the point that Chinese smelters outperform their European, American and Russian counterparts by a wide margin.

China's roadmap puts it squarely on the path of self-sufficiency in the foreseeable future. According to IAI data, the Chinese industry's aluminum output grew by a significant 10% this fiscal compared to last fiscal. When one puts this in perspective with the performance of the rest of the global industry that grew at a measly 2.1%, those figures take on a whole different meaning.

The facts speak for themselves. With China effectively cornering the aluminum industry by virtue of a mixture of faulty decision-making by existing global leaders and spearheading R&D efforts, it will in the near future call the shots on this metal. While the Chinese economy may have slowed somewhat, the rate of production of aluminum in China continues to defy projections.

As the country's policymakers install new production capacity in Xinjiang, forecasts point to an additional 10 million tonnes coming into the market every year over the next four years or so. 10 million tonnes of additional output is equivalent to the present annual output of Western Europe and North America combined. This is hardly good news for big names in the aluminum industry for it clearly points to China striving to become self-sufficient in the metal.

With the Chinese market out of the count as an export destination, the future of the industry does not look particularly bright. One way out of the present glut of aluminum is to cut back on production, but this has been hampered by a whole set of other problems. While companies like BP Billington may be pulling the plug on new production while others diversify into different aluminum-based products such as automotive and aerospace parts, China remains on target.

This is an industry in transition. The pains associated with rolling back and diversification a ground reality. It is only a matter of time before China emerges as No. 1. There will be economic repercussions that will be felt far and wide as we had witnessed with the case of rare earth elements, where China has a 97% stake. One thing though is clear as crystal. The boot is now firmly on the Chinese foot.

Copyright and Exemption Declaration :¢ÙAll articles, pictures and videos that are marked with "China Aluminum Network" on this website are copyright and belong to China Aluminium Network (www.alu.com.cn). When transshipment, any media, website or individual must list the source from "China Aluminium Network (www.alu.com.cn)". We seek legal actions against anyone that disobey this. ¢ÚArticles that marked as copy from others are for transferring more information to readers, do not represent or endorse their opinions or accuracy and reliability. When other media, website or individuals copy from our website, must keep the source. Anyone that changes the articles' sources will hold the responsibilities for copyright and law problems. We also seek legal actions against anyone that disobey this. ¢ÛIf any articles copied by our website concern the copyright and other problems, please contact us within one week.