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Alcoa identifies opportunity in China’s industry

Author:admin Source:本站 Update:2013/6/6 13:54:23   Click:9370
It has been so common for Chinese companies to be among the lowest-cost producers in an industry that it comes as something of a shock when they are not. Klaus Kleinfeld says aluminium is an example of an industry in which China has no particular cost advantage, and as a result is likely to become an increasingly significant importer in the next few years.

“When you look at the structure of the Chinese aluminium industry, it is not a very competitive industry. It’s very expensive and it’s not particularly clean,” Mr Kleinfeld says. “What you’re seeing here is an industry structure that doesn’t really quite fit. It is very energy-intense and energy is probably the thing that China has least.” China’s relative weakness could create opportunities for Alcoa, Mr Kleinfeld says at the company’s modest New York offices – the largest corporate centre is in Pittsburgh.

As the largest producer and consumer of aluminium, China accounts for more than 40 per cent of global supply and demand, and its market is growing at a startling pace. Demand rose 21 per cent last year, and Alcoa expects a 17 per cent rise this year. Industrialisation and urbanisation are driving demand for aluminium for uses including construction, packaging, cars and aircraft. Barring a collapse in the Chinese economy, growth is likely to continue. Brook Hunt, the metals research firm owned by Wood Mackenzie, has forecast that Chinese aluminium demand will rise from 19.8m tonnes this year to 29.8m in 2015.

However, Mr Kleinfeld says, the Chinese industry has weaknesses. For a start, its supply of bauxite, the raw material, is insufficient. China imports about 40 per cent of its needs, and a third of domestic production is mined underground, a high-cost means of extraction compared with the surface operations used for production in countries such as Australia and Guinea.

Of the Chinese refineries that turn bauxite into alumina, the intermediate product, 37 per cent are in the top quartile in the world for costs. They are also mostly coal-fired, causing much of the pollution that China is seeking to control. Smelting alumina to make aluminium is energy-intensive to the extent that energy typically accounts for about 40 per cent of the cost of production, putting Chinese plants at an even greater disadvantage.

About 45 per cent of China’s smelters are in the top cost quartile. In the coming years, the pressure on those plants will intensify. China’s recently adopted 12th five-year plan calls for limits on the growth of non-ferrous metals production, to conserve domestic raw materials, cut pollution and raise the energy efficiency of the economy by curbing energy-intensive industries. Chinese aluminum production is still likely to grow – Brook Hunt estimates that in 2015 China will import 2m tones, or only about 7 per cent of its demand.

Julian Kettle of Brook Hunt expects China to become an increasingly important structural importer as output growth lags behind demand.

Mr Kleinfeld says that will have significant implications for the industry. “You will see a huge opportunity for the industry to help in renovating the Chinese aluminium industry by imports and by co-operating outside with Chinese firms,” he says.

That pressure on Chinese companies to expand internationally is a threat as well as an opportunity. Chinalco, the largest aluminium group, is investing in a new smelter in Malaysia and exploring the potential for developing bauxite mines and other facilities in Guinea.

However, Alcoa signed a co-operation agreement with China Power Investment Corporation, when Hu Jintao, China’s president, visited the US in January, followed by a joint venture agreement last month to work on producing high-end fabricated aluminium products in China for the automotive, aerospace, packaging and consumer electronics markets. Making a success of that venture, and the broader relationship with China, will be critical to Alcoa.



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