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Analysis of China’s Aluminum Processing Market in 2014

China’s aluminum product manufacturers are mainly concentrated in southeast coastal regions and hinterland regions, provinces with leading output ranking include Shandong, Henan, Guangdong, Jiangsu and Zhejiang etc. In recent years, with industrial upgrading and transition in regional economic structure, the ranking of output from different provinces and areas also experienced some changes each year, According to statistics from the China Nonferrous Metals Industry Association, In 2014 China’s total output of aluminum processing products is 484,550,000 tonnes, up by 18.57% on Y-o-Y basis, three top-ranking provinces in terms of aluminum product output are respectively Shandong, Henan, and Guangdong Province. It is necessary to pointed out that, currently there is difference in statistics criteria for aluminum product varieties in China, coupled with inadequately developed statistics system, the result is there is widespread phenomenon of repeated output calculation and non aluminum product varieties being counted into aluminum product output in statistics, there is growing discrepancy between total output of aluminum products, regional outputs and actual conditions, in 2014 China’s actual output of aluminum product is estimated to be 30.30 million tonnes.

Since 2013, China’s aluminum processing industry replaced aluminum smelting industry to become investment hot spot in the nonferrous metal field. In 2013, the aluminum processing industry recorded investment of 157 billion yuan, up by 26.6%. In 2014 China’s aluminum processing unit continued to receive hot pursuit from investors, according to data published by China Nonferrous Metals Industry Association, from January to November 2014, China’s aluminum processing completed fixed asset investment amount of 165.37 billion yuan, up by 26.07% on Y-o-Y basis, accounting for 51.6% of total investment in nonferrous metal processing; there were 926 construction projects, up by 20.6% than 768 in the same period last year; the fund investment size for single project and technological equipment further increased. According to Antaike’s rough estimate, by the end of 2014, China’s aluminum processing production capacity has reached 43.85 million t/a, up by 9.9% than the previous year. Wherein:

①Extrusion products: In the recent several years, China’s profile enterprises experienced transition period: On the one hand, industrial chain extended downward, shifted from construction aluminum profile to home decoration aluminum profile system doors and windows, because home decoration building material technology is relatively mature, the market is relatively stable. On the other hand, industrial chain integrated longitudinally, in order to look for new application space, it turned toward industrial aluminum profile, and whipped up a construction wave of large extrusion machine, meanwhile it also brought serious homogenization trend in the investment of domestic industrial profile, the demand of individual terminal industries tend to saturate. Antaike estimates that in 2014 China’s extrusion production capacity is about 23,000,000 t/a, up by 8.5% than the precious year; the output is estimated to reach 16,220,000 tonnes, up by 11.1% than the previous year; capacity utilization rate is 70.5%, slightly 1.7 percentage points than the previous year. According to incomplete statistics, in 2014 the number of aluminum extrusion projects launched into production is about 16, total production capacity was about 1,100,000 t/a; 7 projects are under construction, total production capacity is about 1,370,000 t/a.

②Flat rolled products: Antaike estimates that, in 2014 the production capacity of aluminum flat rolled products (FRPS) was about 12,700,000 t/a, up by 13.4% than the previous year. In 2014, China’s output of aluminum flat rolled products was about 7,650,000 tonnes (excluding aluminum foil output, but including aluminum foil strip billet), up by 9.3% than the previous year, capacity utilization rate is only about 60.2%, down by 2.3 percentage points than the previous year. As the hot wave of big extrusion machine construction gradually subsidized, large rolling equipment became the protagonist of a new round of aluminum processing industry investment.

③Aluminum foil: China has become a preliminary power and top big nation of global aluminum foil, the output of some individual products cannot fully meet demand, for instance high voltage anode electronic foil, lithium ion battery foil etc also needs some import. China owns the world’s highest number and most advanced 2000MM grade foil rolling mills, totaling 35 sets, its production capacity is about 400,000 t/a. Antaike estimates that in 2014 China’s aluminum foil production capacity was about 3,850,000 t/a, up by 10% than the previous year; output was about 2,650,000 tonnes, up by 8.2%, the capacity utilization rate is about 68.8%, down by 1.2 percentage points than the previous year.

④Forged products: Free forged piece and mold forged piece is a type of key load bearing structure component, China has become a fledgling big power of global aluminum forged piece production, by the end of 2014, China’s production capacity of aluminum forged piece is bout 150,000 tonnes (including vehicle wheel forged piece), output was about 90,000 tonnes. China’s automobile and railway vehicle manufacture will continue to witness considerable development, as the forged piece for producing such equipment will continue demonstrate big growth potential.

2. Continual capacity expansion kept the overall operating rate of China’s aluminum product industry consistently below 70% low level. In 2014 the average utilization rate of China’s extrusion capacity was 70.5%. The operating condition slightly improved than the previous year; the average utilization rate of sheet & strip capacity is only 60.2%, down by 2.3 percentage points than previous year, resulting in seriously inadequate operating condition; the average utilization rate of aluminum foil capacity is 68.8%, down by 1.2 percentage points than the previous year. Judging from the current project tracking info, there are still many aluminum processing projects now under construction or being planned for construction, in the several upcoming years, the situation of China’s aluminum processing industry allows no optimism.

① Operating condition of profile enterprise: Since the second half of 2014, the “turning point” of China’s real estate industry came, the downturn of real estate market dragged down orders of China’s construction profile, although high speed railway bidding brought many orders to industrial aluminum profile enterprises, the overall quantity is after all limited. Whereas the lack of market investment channel promoted funds to continually enter the aluminum processing industry, resulting in continual growth in profile capacity, so that the operating rate of profile enterprise was consistently kept above 60%, nevertheless the operating rate at its peak was no more than 70%.

②Operating condition of sheet & strip foil enterprises: In 2014, the operating rate of aluminum sheet & strip enterprises maintained overall stable condition, on the one hand it’s because whole year capital was strained, enterprises basically were able to enter production based on sales, without orders manufacturers dare not start production, leading to big fluctuation in enterprise operating rate; on the other hand, In 2014, domestic and overseas orders formed a healthy mutual complementation relation, in the first half of the year domestic orders were sufficient, in the second half of the year domestic orders was inadequate, and export orders made up for the lack of domestic market. In 2014, the operating condition of aluminum foil manufacturer was ordinary. Since the second half of 2013, the high inventory of air conditioner market affected stock preparation of air conditioner foil in factories, the summer of 2014 is not high-temperature season, generally stock preparation of air conditioner foil in the second half of the year in the factory was again postponed, although orders of medium gauge foil and light gauge foil increased evidently, the overall operating rate of aluminum foil enterprises still received impact from air conditioner foil, throughout the year it basically stayed above 60%.

Antaike estimates that, aluminum products including sheet & strip & foil, extrusion products, and aluminum wire in 2014 China’s total consumption of aluminum products was 27.345 million tonnes, up by 9.3% than that of the previous year. Driven by real estate, extrusion products is the fastest growing aluminum product variety in terms of demand.

① Growth of construction industry demand remained sluggish

Since the beginning of 2014, the state government’s macro regulation & control over real estate industry gradually weakened, meanwhile shanty town upgrading and construction of affordable housing and two-limit housing (housing with cap on price and unit layout) as well as old housing decoration generated new pulling force for the demand of aluminum products, as a result the consumption ratio of aluminum product in construction field rose to certain degree than 2013. But since the second half of the year, real estate market remained sluggish, although the capital liquidity improved to certain degree due to interest rate cut by the People’s Bank, on the one hand financial stimulation weakened brought slowdown infrastructure investment; on the other hand China’s stock market became a favorite promising target for investors, in the short term, the increased liquidity due to interest rate cut had limited stimulating effect on real economy, shortage of capital supply in real economy did not receive effective alleviation. The growth of aluminum product consumption in the construction industry continued to slow down.

According to data published by the National Bureau of Statistics, in 2014 the nationwide investment in real estate development was 9503.6 billion yuan, up by 10.5% than the previous year in nominal term (actual growth is 9.9% after deducting price factor), down by 9.3 percentage points than 2013. In 2014, real estate development enterprises housing construction area was 7264.82 million sqm, up by 9.2% than previous year, the growth speed dropped by 0.9 percentage points than January-November period;

② Growth of electric power & electronics industry dropped significantly than the same period last year

Electric power and electronics is the second biggest field of China’s consumption of primary aluminum. According to data published by National Energy Administration, in 2014, China’s power grid infrastructure construction completed investment of 411.8 billion yuan, up by 6.8% than that in 2013, growth margin increased by 0.4 percentage points than the previous year. In electronic 3C industry, in the fourth quarter of 2014, outputs of all major products all grew to certain degree compared with the same period last year, but the growth margin shrank. Between January and November, outputs of mobile telecommunication handheld device, electronic computer and micro computer respectively grew by 7.4%, 2.9% and -0.2% on Y-o-Y basis, Y-o-Y growth margin all declined to certain degree than the third quarter, in which output of micro computer recorded negative growth on Y-o-Y basis for the first time since the beginning of this year.

③Transportation industry maintained stable growth

While continuing to maintain relatively big percentage in durable consumer products and electronic & electric power field, the aluminum product usage in transportation field is also growing significantly, consumption percentage continued to maintain growth momentum, specifically in metro, high speed railway and freight railway train aspects, meanwhile, automobile-use aluminum sheet, aluminum forged piece also received optimistic expectation in development prospects, up by 14.76% and 13.87% on Y-o-Y basis. According to statistics from the China Association of Automobile Manufacturers, in 2014, the growth of automobile production and sales slowed down, Y-o-Y decline margin of commercial vehicles slightly increased. Throughout the whole year, automobile production & sales were 23.7229 million sets and 23.4919 million sets, up by 7.26% and 6.86% than those of last year, growth margins respectively declined by 7.5 and 7.01 percentage points than those of the previous year. Wherein, production and sales of passenger vehicles respectively grew by 10.15% and 9.89% than the last year.

④Household electrical appliance industry recorded weak performance

In the fourth quarter, in the household electrical appliance industry, the output growth of refrigerator and washing machine remained sluggish, whereas for the air conditioner industry, which is the key user in aluminum field, though it displayed relatively strong growth since the start of the year, in 2014 most regions in China were relatively cool during the summer period, the result is after July the output of air conditioners did not show any significant growth just like in past years on Y-o-Y basis, air conditioner stock increased. According to statistics, in 2014, China’s total output of air conditioners was 157.16 million sets, up by 11.15% than the previous year, the growth speed is basically on par with the previous year.

Judging from feedback from domestic aluminum product enterprises in 2014, the “product price war” problem triggered by capacity surplus is still very prominent. Meanwhile, weak domestic economic growth also dragged down the growth speed of aluminum downstream consumption market, in 2015 such condition will continue, output growth will further decelerate. It is estimated in 2015 domestic aluminum product output will reach 32,800,000 tonnes, up by 8.3% on Y-o-Y basis. The forecast output figures of all varieties are as follows: Aluminum sheet & strip are 8,400,000 tonnes, aluminum foil is 2,900,000 tonnes, aluminum extrusion product is 17,460,000 tonnes, aluminum wire is 3,750,000 tonnes, forged piece and powder etc are 290,000 tonnes.

In 2015, the growth of Chinese economy will stay in a “new normal” evolving from high speed growth to mid to high speed growth. It is estimated whole year aluminum product consumption is 29.427 million tonnes, growth margin is 7.6%, down by 1.7 percentage points than last year. Economic growth at reduced speed will create relatively big impact on the construction sector such as real estate, so as to bring relatively obvious negative effect to the demand for construction profile which accounts for the highest percentage in aluminum product consumption. As a result, we consider that in 2015, the growth speed of extrusion products demand will possibly become the lowest among major aluminum product varieties, but judging from total volume, extrusion products consumption still ranks top, accounting for 56%, aluminum sheet & strip is 23%, aluminum wire is 13%, aluminum foil is 7%.

In the aspect of aluminum profile, in 2015, investment growth of real estate industry under the “new normal” is expected to decline further, the real estate market will continue to make adjustment, housing price will continue to return to rationality. China’s real estate market has finished the transition from housing shortage stage to upgrading improvement stage, future housing potential demand will decline year by year. Accordingly, the consumption of construction aluminum profile is expected to further decline. Industrial aluminum profile output is expected to remain stable with certain growth. Meanwhile, traditional big countries of aluminum profile consumption in Europe and the US are still imposing anti-dumping measures on China, domestic profile’s export destinations are still in developing countries including the Middle East, Africa and Latin America etc. It is estimated in 2015 Shanghai LME aluminum ratio will remain at low level, export of aluminum profile may experience significant growth. In the aspect of aluminum sheet & strip, in 2015 the demand of terminal industries such as transport, beverage, and electronics will maintain fast speed development, construction decoration aspect may have limited growth due to impact of the real estate industry, the demand of domestic and overseas markets will still maintain aluminum foil orders. Meanwhile, the low level of Shanghai LME aluminum ratio guarantees profit space, and also initiative of domestic enterprise export. In 2014 domestic ultra high voltage (UHV) grid orders and bidding were concentrated, in 2015 the output of aluminum wire and cable is expected to be released collectively.