Several key issues affecting the survival and development of China’s aluminum industry

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In recent years, China’s aluminum industry has developed rapidly, with strong investment enthusiasm and increasing production volume year by year, resulting in a situation of robust both in production and sales. However, various potential problems are becoming increasingly apparent, the main ones being as follows: Production is increasing year by year, leading to a situation where supply exceeds demand. Given the high return on investment in the aluminum smelting industry, this encourages existing companies to expand their production scale, while at the same time attracting private capital and foreign investment into aluminum smelting projects. In 2002, China produced 4.4 million tons of aluminum, and it is estimated that this figure will reach 5.1 million tons this year. As the newly built and expanded production capacity is gradually translated into actual output, China’s aluminum production is expected to reach 7 million tons in 2005 and 10 million tons by 2010. The increase in production will shift the supply and demand balance for primary aluminum from equilibrium to a situation where supply exceeds demand, which will inevitably lead to increased competition, lower profits for companies, and even losses for some of them. Resource shortages and high costs: At present, due to a tight supply of alumina, the raw material used for aluminum production in our country, as well as a limited domestic electricity supply, the prices of alumina and electricity are rising steadily, which increases the cost of aluminum production. At present, there are over 130 aluminum production enterprises in the country. However, due to a lack of high-quality aluminum ore resources, the output of high-quality alumina in China is low, which forces many large-scale aluminum producers to rely on imported alumina to meet their production needs. Based on relevant data, it is evident that the supply gap for alumina in China is widening. Furthermore, since alumina is a non-renewable resource and its production growth is limited, it is not possible to increase output significantly in the short term; thus, a supply gap for alumina will persist for a long time. A shortage of raw materials will inevitably lead to price increases, and rising alumina prices will in turn increase the production costs of aluminum ingots; as a result, aluminum manufacturers’ profits will decrease. At the same time, the newly added production capacity cannot be converted into actual output due to a shortage of alumina, and some aluminum plants are facing closure as alumina cannot be found. From the perspective of power supply, power cuts during peak usage periods in some areas have already affected a number of aluminum plants. The aluminum plant in Guizhou that has publicly stated that its production has been impacted is producing approximately 34,000 tons less than planned. For aluminum plants that rely on thermal power for operation, rising coal prices mean that during the peak electricity demand periods in summer, electricity prices in regions dependent on coal-powered generation such as Central and North China are likely to increase further. As a result, the production costs of aluminum will continue to rise in the future. It is evident that the production cost of aluminum will remain high in the long term. Aluminum plants have low production volumes and suffer from poor economies of scale. According to statistics, by the end of 2002, there were 131 electrolytic aluminum plants in operation in China, a number that exceeded the total number of such plants worldwide, excluding China. In contrast, the average capacity of aluminum electrolysis plants in our country is only 39,200 tons per year, which is a significant difference compared to the world average of 193,000 tons per year. Due to its small scale, it inevitably leads to duplicate construction, resulting in suboptimal allocation of resources, severe waste of resources, high energy consumption per unit of output, high production costs, and narrow profit margins. At the same time, due to the large number of aluminum factories, competition has become more fierce, even turning into vicious competition. Therefore, enterprises with outdated equipment, small scale, and a limited range of products are at risk of being eliminated. The industrial structure is unreasonable. At present, most aluminum plants in China focus on producing primary aluminum, and their pursuit of extensive growth and low-level output expansion will lead to structural imbalances. Since the technology for electrolytic aluminum production is now mature and the entry barrier is low, processing and producing aluminum ingots is no longer an investment sector with extremely high requirements in terms of capital and technology. As a result, private capital has also begun to get involved in this field; however, such investments are mainly focused on the production of low- to mid-end primary aluminum, while aluminum alloys and high-purity aluminum, which have higher added value, are neglected. As a result, the domestic market is currently faced with an oversupply of ordinary aluminum ingots, leading to price wars. On the other hand, high-quality high-purity aluminum and aluminum alloys are in short supply. According to relevant statistics, the annual shortage of high-purity aluminum in the country is around 100,000 tons. This indicates that there are significant structural issues in the supply and demand dynamics of China’s aluminum industry market, namely an oversupply of some products while others are in short supply. In summary, the author believes that the above issues are urgent and need to be addressed promptly. The measures that can be taken are as follows: First, the relevant regulatory authorities should restrict the establishment of new small aluminum plants as well as local aluminum plants, and merge and restructure existing aluminum plants to prevent an excessive increase in production ； Second, while domestic aluminum plants are actively seeking and developing domestic alumina mines, they should also form joint ventures with foreign aluminum plants abroad. Given the current shortage of alumina in China, they can engage in processing of imported materials or sign long-term supply contracts with foreign alumina suppliers ； Third, domestic aluminum plants have become large-scale enterprises through mergers and restructuring ； Fourth, adjust the industrial structure to make it more diversified ； Fifth, domestic aluminum manufacturers upgrade themselves by introducing capital and technology, striving to grow larger and stronger