China Tightens Restrictions on Domestic Aluminum Industry

The National Development and Reform Commission (NDRC) announced yesterday that the Chinese government has placed further restrictions on the domestic aluminium industry, introducing new requirements for minimum capacity, location and energy consumption, so as to ensure sustainable growth in the sector.

According to the announcement, new alumina projects must receive NDRC approval before commencing construction, and if using domestically-produced bauxite, must have an initial annual capacity in excess of 800,000 tonnes and self-supply over 85% of required bauxite.

Alumina projects that rely on imported bauxite must possess a minimum of 5-years of bauxite supply though a joint venture company, which is able to supply 60% of bauxite needed for production, and is capable of producing at least 600,000 tonnes per annum.

Electrolytic aluminium expansion projects also require NDRC approval, which will only be granted to projects related to environmental reform and outdated capacity replacement.

New bauxite mining projects must have a minimum output capacity of 300,000 tonnes per annum, and a lifespan of at least 15 years. Moreover, if total investment exceeds RMB 500 million ($67.29 million), the project requires approval from not only the provincial government and NDRC, but also the central government.

Proposed secondary aluminium projects require a minimum annual capacity of 50,000 tonnes, while existing projects must exceed 20,000 tonnes or face decommissioning. Moreover, approval will be limited to reconstruction or expansion projects with an annual output capacity in excess of 30,000 tonnes.

Aluminium processing projects must have a minimum output capacity of 100,000 tonnes per annum, with a broad profile covering plate, strip, foil, extruded pipe and industrial profile. While single-product projects require a capacity of at least 50,000 tonnes for plate and strip, 30,000 tonnes for foil, and 50,000 tonnes for extruded pipe and industrial profile.

Moreover, a minimum of 35% of the total investment in all mining, smelting and recycling projects must be made in cash.

With regard to energy consumption, new Bayer alumina projects must limit energy consumption to less than 500 kilograms of standard coal for every tonne of alumina produced, while all other new alumina projects must consume no more than 800 kilograms of coal per tonne of alumina. New or upgraded electrolytic aluminium projects are restricted to a maximum of 14,300 kilowatt hours for every tonne of aluminium produced.

The new restrictions also prohibit the construction of new aluminium smelting facilities within 1 kilometre of conservation areas, medium and large-sized cities and suburbs, residential areas and hospitals, as well as medicine, electronics and food factories.

The government hopes the new restrictions will promote structural improvement and regulate investment in the domestic aluminium industry, in order to ensure sustainable growth and to achieve energy saving and emission reduction targets.

China also intends to strengthen its control over the domestic lead and zinc smelting industry and release policies to phase out outdated and excessive capacity, a National Development and Reform Commission (NDRC) official told Interfax today.

"The new policies may include preferential electricity prices and new environmental impact standards. We are currently in the process of carrying out a nationwide survey of smelters," an NDRC official, who asked to remain anonymous, said.

The NDRC has called on provincial governments to examine zinc and lead smelters and develop a plan to remove outdated capacity that would be implemented by 2010.

Any smelters that meet production standards previously released in March this year, will be showcased and re-examined by regulatory authorities and experts, including the China Nonferrous Metals Industry Association (CNMIA), according to an NDRC announcement released yesterday.

The commission announced in March this year that it will block any new lead projects with a capacity less than 50,000 tonnes per annum, and zinc smelters with a capacity less than 100,000 tonnes per annum.

"The access standards released in March have successfully curbed capacity expansion in the lead and zinc sector. However, it is difficult to determine exactly how much excessive capacity still exists, and this is the main reason behind the NDRC's nationwide survey," Beijing Antaike Information analyst, Zhang Changhuan, said.

The Chinese government intends to expedite the elimination of outdated production capacity and limit over-expansion in the industry in order to maintain supply and demand balance for lead and zinc.

Authorities are getting more serious in their goals to reduce capacity and foreign direct investment. Eliminating inefficiencies will cut down on waste, yet may not be effective in reducing current overcapacity.

Banning foreigners in core activities such as mine development may slowdown capital inflow, which is desirable, although recently floated ideas of cutting export rebates and imposing export taxes will be more effective in the longer term.

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