Analysis Of Development Status And Path Of Alumina Industry In Shanxi Province (Part I)

I. Analysis of status of alumina industry in Shanxi province

1. Overview of bauxite reserve in China

According to the China Mineral Resources Report 2018 published by the Ministry of Natural Resources of the People’s Republic of China, the identified bauxite resources in 2017 increased by 158 million tons to reach 5.089 billion tons, increasing by 4.9% YoY and by 1.069 billion tons than that of 2014, and realizing a CAGR of 8.18%. In China, the bauxite is mainly distributed in Guangxi, Guizhou, Henan and Shanxi, which have a reserve of 492 million tons, 144 million tons, 143 million tons and 142 million tons respectively, making up 91% of the total reserve nationwide. Specifically, the bauxite reserve in Guangxi province alone occupies 49% of the total reserve nationwide, and the bauxite reserve in Shanxi province occupies 14% of the basic reserve nationwide, ranking the 4th place.

At the end of 2016, China issued the National Mineral Resource Planning 2016-2020, which proposed to build 5 national bauxite planning areas, with 4 in Shanxi.

Based on the estimate that 1-ton alumina requires about 2-ton bauxite, the domestic bauxite production capacity can’t meet the requirements of the alumina enterprises in China. Based on the comparison between the production and import of bauxite in China, except for 2009 when the global financial crisis broke out and 2014 when the chinese economy declined, the ratio of import and production of bauxite in China remains 0.5 and even reached over 1 in 2007, 2008, 2011 and 2014, which shows the continuously wider gap of the bauxite production in China.

According to the statistics of China Customs, the accumulative import volume of bauxite in China in 2018 reached about 82.62 million tons, increasing by about 20.5% than that of the same period in 2017. In 2018, Guinea was the largest exporter of bauxite to China, with an export volume of about 38.19 million tons, increasing by about 38.2% YoY; followed by Australia, with an export volume of about 29.77 million tons, increasing by about 16.8% YoY; and then Indonesia, with an export volume of about 7.54 million tons, increasing by about 480% YoY.

2. Capacity and production of alumina in Shanxi province

Since 2000, the chinese alumina industry started its rapid development, featuring rapid increase in capacity and production, and increasing proportion in global alumina production - 54.2% in 2018, 43.8 percentage points higher than that in 2003. Specifically, the alumina production in China has increased from 44.38 million tons in 2013 to 72.53 million tons in 2018, realizing a CAGR of 6.3%. Meanwhile, the alumina industry in Shanxi also showed a tendency of rapid development, and its production has increased from 7.85 million tons in 2013 to 20.24 million tons in 2018, realizing a CAGR of12.6%, 6.3 percentage points higher than the national CAGR.

Based on the comparison of the development status of the alumina industry between Shanxi and China, the alumina capacity increased faster than the national capacity obviously in recent years, thanks to the demand for industry restructuring in Shanxi and the strong support of the Shanxi provincial people’s government for development of the industry chain of coal-power-aluminum-material. In terms of production, the growth rate of alumina in Shanxi is comparable to the national rate, and slightly higher than the national level in 2016 and 2018. Before 2017, the alumina capacity utilization in Shanxi had been higher than the national level, with a declining trend. In 2018, the alumina capacity utilization in Shanxi dropped to 80.6%, 3.3 percentage points lower than the national level and 14.2 percentage points lower than that in 2015.

In China, the alumina capacity is mainly distributed in Shandong, Shanxi, Henan, Guangxi, Guizhou, Yunnan, Chongqing and Inner Mongolia. Among them, Shandong and Shanxi rank the first and second places respectively in terms of completed capacity, with an annual capacity of 29.10 million tons and 25.85 million tons respectively (34.5% and 30.7% in national completed capacity), totaling 65.2% of the national capacity. In 2018, the new capacity in the above 8 provinces/municipalities reached 1.85 million tons, increasing by 2.25% YoY. Specifically, Henan and Guangxi showed varying decline, and the other 6 provinces/municipalities showed positive growth. The alumina capacity in Shandong realized a growth of only 0.34% YoY, basically at the same level as last year; the alumina capacity in Shanxi realized a rapid growth of 2.50 million tons (10.71% increase YoY), ranking first nationwide.

In 2018, the alumina production of Shandong, Shanxi, Henan and Guangxi was 23.91 million tons, 20.82 million tons, 11.12 million tons and 8.13 million tons, with proportions of 33.8%, 29.5%, 15.7% and 11.5% in national production respectively, totaling 90.5%. Specifically, the total production of alumina in Shandong and Shanxi alone accounts for 63.3% of the national production. Compared with 2017, the alumina production of Shandong, Guangxi and Guizhou showed a decline YoY, and the other provinces/municipalities showed varying rise YoY (Shanxi 3.24%).

In terms of the alumina capacity utilization in China, Henan, Guangxi and Guizhou reached 97.94%, 96.81% and 91.04% respectively; despite of the first and second places in terms of capacity and production, Shandong and Shanxi are not in the lead in terms of capacity utilization - 82.16% and 80.55% respectively; and Chongqing and Inner Mongolia showed significantly low capacity utilization of alumina - 38.89% and 35.14% respectively.

Thanks to the resource endowment and mature supporting industries in Shanxi, the alumina industry in Shanxi boasts a favorable cost advantage; plus the attention to and support for the aluminum industry from Shanxi Provincial Party Committee and Shanxi Provincial People’s Government, the alumina capacity and production in Shanxi have showed a continuous growth tendency in recent years. However, due to influence factors as production restriction (environmental requirements) and capacity climbing, the production growth rate of alumina was below the capacity growth rate in Shanxi during 2016-2018.

3. Status of alumina enterprises in Shanxi

At present, there are 15 alumina enterprises in Shanxi, mainly distributed in Lvliang, Xinzhou, Yuncheng, Jinzhong and Yangquan, boasting a total completed capacity of 25.75 million tons and high industrial concentration. Specifically, there are 10 alumina enterprises in Lvliang, with a total capacity of 14.95 million tons - 58.06% of the total capacity in Shanxi; Xinzhou Yuanping has a capacity of 3 million tons - 11.65% of the total capacity in Shanxi; Yuncheng has a capacity of 3.7 million tons - 14.37% of the total capacity in Shanxi; Jinzhong has a capacity of 3 million tons - 11.65% of the total capacity in Shanxi; and Yangquan has a capacity of 1.1 million tons - 4.27% of the total capacity in Shanxi.

As a leader in alumina industry in Shanxi, Lvliang has its alumina capacity mainly distributed in Xiaoyi, Jiaokou, Xingxian and Liulin, which have a capacity of 7.85 million tons, 3.7 million tons, 2.2 million tons and 1.2 million tons respectively, accounting for 30.49%, 14.37%, 8.54% and 4.66% of the total capacity in Shanxi, totaling 58.06%. Particularly, there are 6 alumina enterprises in Xiaoyi alone.

In Shanxi, the alumina capacity is distributed in 9 counties/cities, and the capacities of Xiaoyi, Jiaokou, Lingshi, Yuanping, Hejin and Xingxian County reach over 2 million tons/a, accounting for 87% of the total capacity in Shanxi. Specifically, Yangquan Coal Industry Group, a provincial-level state-owned enterprise, has an alumina subsidiary, which has a capacity of 1.1 million tons/a; CHALCO has three alumina subsidiaries in Lvliang Jiaokou, Lvliang Xingxian and Yuncheng Hejin, with a total capacity of 5.8 million tons - 22% of the total capacity, ranking the second place in Shanxi; Shandong Xinfa Group has alumina subsidiaries in Lvliang Xiaoyi and Lvliang Jiaokou, with a total capacity of 6.2 million tons - 24% of the total capacity, ranking the first place in Shanxi; Hangzhou Jinjiang Group has two alumina subsidiaries in Lvliang Xiaoyi and Yuncheng Pinglu, with a total capacity of 3.8 million tons - 15% of the total capacity, ranking the third place in Shanxi; and SPIC and East Hope Group each has 1alumina subsidiary with a capacity of 3 million tons/a in Xinzhou Yuanping and Jinzhong Lingshi respectively.

4. Development status of downstream industry

Since 2014, China has been regulating the electrolytic aluminium as an industry with significant capacity excess, requiring that the new electrolytic aluminium capacity projects have to subject to strict capacity replacement. However, due to high difficulty and cost of trans-provincial capacity replacement, the integrative development of coal-power-aluminum-material in Shanxi is slow. From the perspective of national aluminum industry pattern, Shanxi is strong in bauxite and alumina and weak in electrolytic aluminium and aluminum processing, with acute structural imbalance. In Shanxi, the aluminum industry development is poorly aligned with the resource endowment, the industrial chain is incomplete, and there is no intensive development model between the upstream and downstream.

In China, the electrolytic aluminium is widely distributed in Shandong, Xinjiang, Henan, Inner Mongolia, Gansu and Qinghai, boasting a total capacity of 24.81 million tons in 2016 - 77.8% of the national capacity. Specifically, the production of electrolytic aluminium in Shandong and Xinjiang rank the first and second places respectively, with capacities of 8.31 million tons and 6.35 million tons - 26.1% and 19.9% of the national capacity respectively, totaling nearly half of the national capacity. Despite of high production of alumina, Shanxi has a small capacity of electrolytic aluminium (only 1.21 million tons), and the annual production of electrolytic aluminium in 2016 was only 868,200 tons - 2.7% of the national capacity, ranking the ninth place nationwide.

Based on the technological process of production of electrolytic aluminium, the production cost of electrolytic aluminium mainly consists of raw materials, energy, labor, depreciation, tax and other financial cost. Specifically, raw materials as alumina and prebaked anodes and electrical energy constitute the major cost. The production of 1-ton electrolytic aluminium consumes 1.9-2-ton alumina, making the alumina account for 30-40% of the total cost of electrolytic aluminium. The production cost of alumina mainly consists of bauxite, caustic soda, limestone and energy, and the production of 1-ton alumina consumes 2.3-2.5-ton bauxite, 120-140kg caustic soda and 200kg limestone. With the increasing consumption of high-grade bauxite resource and stricter environmental policy in China, our dependency on import of high-grade bauxite will continuously increases.

In China, aluminium product processing industry is mainly concentrated in Henan, Shandong, Guangdong and Jiangsu, which boasted production of 8.58 million tons, 8.52 million tons, 4.72 million tons and 2.78 million tons, accounting for 18.8%, 18.7%, 10.4% and 6.1% of national production respectively, totaling 54%. In 2018, the production of aluminium products in Shanxi was 463,100 tons, accounting for only 1.0% of the national production and ranking the 22nd place nationwide.

As the final product of the aluminum industry, aluminium products mainly consist of industrial profiles, architectural profiles, hot and cold rolled aluminum plates & strips and foils. Specifically, industrial profiles are mainly used in fields as aerospace, rail transit, automobiles, military, machinery, containers and electronics; architectural profiles are mainly used in fields as doors and windows and curtains; aluminum plates & strips are mainly used in fields as printing (PS/CTP substrate), body and cover and decorative panels; and aluminum foils are mainly used in fields as drugs, tobacco, food packaging and aluminium electrolytic capacitors. At present, in the aluminium product mix in China, profiles account for about 50%, plates & strips and foils account for about 30%, and the cast products account for the remaining 20%.

From the perspective of downstream demand side, the aluminum industry corresponds to the downstream applications as architecture, power electronics, transportation, machinery and consumer goods, and sectors as real estate, automobiles, home appliances and electronics. Under the macro-economic situation, it is estimated that the major aluminum product consumers as real estate, automobiles, home appliances will show a smooth development trend and continuously decline in growth rate, and rigid demand will become the major driver of the growth of consumption, making the high-end development and application a new direction of the aluminum industry.

From the perspective of consumption structure, according to the statistics of China Nonferrous Metals Industry Association, in 2017, the construction sector was the biggest consumer of aluminum products, accounting for about 39%, followed by sectors as transportation, power electronics and durable consumer goods, accounting for about 17%, 16% and 14% respectively. According to the statistics of ATK, the primary aluminium consumption in China in 2017 reached 35.40 million tons (YoY increase of 7.9%), accounting for 55% of global consumption. Specifically, the architecture & structure, power electronics, transportation and durable consumer goods made the major contribution with consumption of 11.36 million tons, 5.39 million tons, 4.40 million tons and 4.01 million tons, accounting for 32.1%, 15.2%, 12.4% and 11.3% of national consumption and totaling about 71%.