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

II. Analysis of competitiveness of alumina industry in Shanxi Province

1. Resource endowment advantage

Shanxi Province has incomparable natural endowment for development of coal-power-aluminum-material industry compared with other regions in China. It has abundant bauxite resources. By the end of 2015, the accumulative proven reserve of bauxite resources in Shanxi reached 1.62 billion tons, with an available reserve of about 1.527 billion tons, accounting for 32.5% of the proven bauxite resources reserve nationwide (ranking the first place nationwide). Specifically, the available reserve of bauxite resources in Lvliang City alone reaches 649 million tons, accounting for 42.5% of the total of Shanxi Province.

2. Alumina industry advantage

By the end of 2018, the built capacity of alumina in Shanxi Province reached 25.85 million tons, which accounts for one third of the total capacity in China, ranking the second place nationwide; the annual alumina production in Shanxi Province reached 20.82 million tons, which accounts for 29% of the total production in China; three aluminum industry clusters have been established in the south, west and middle of Shanxi Province, and a relatively advanced industrial system backed by large enterprise groups as CHINALCO, SPIC, Xinfa, Jinjiang, East Hope and Yangquan Coal Industry, etc. has taken shape.

3. Resources supporting advantage

Shanxi Province boasts the optimal combination and matching in terms of advantages of bauxite, coal, power and location in China, as well as advantaged conditions, making it a recognized best region for the development of aluminum industry. In 2017, the 282.4 billion kWh was generated in Shanxi Province, and 199.1 billion kWh was consumed, leaving 83.3 billion kWh to be exported (29.5% of the total generation).

By the end of May 2018, Shanxi Province boasted 1,277 substations of 35 KV and above, a transformation capacity of 160 million KVA, 3,099 transmission lines (totaling 50,700 km), and has initially formed a supply network featuring a core of EHV (three 1,000 KV AC lines of Southeastern Shanxi-Nanyang-Jingmen, Western Inner Mongolia-Northern Shanxi-Southern Tianjin, Yuyang & Hengshan-Jinzhong-Weifang, and one ±800 KV DC line of Northern Shanxi-Jiangsu), a backbone network of 500 KV three vertical lines and four horizontal lines, 220 KV zoned looped operation and 110KV and below covering urban and rural areas throughout the province.

On April 26, 2017, the Commission of Economy and Information Technology of Shanxi Province and the Development and Reform Commission of Shanxi Province jointly issued the, which officially approved the pilot program. Based on the principles of increases in generator units, power distribution network and consumers, Shanxi Province Aluminum Circular Industry Park proposed to build a local power grid with backbone of Jinneng Datuhe Power Plant, Jinneng Xiaoyi Power Plant and 220KV line connected to 500,000 t/alight alloy project in Xingxian County Aluminum Circular Park, which will not only consume coal resources within Jinneng Group, improve the operation of power industry within Jinneng Group, but also strengthen the grid structure, significantly lower the cost of downstream consumers, and transform the resources and energy advantage into economic advantage and development advantage.

4. Policy support advantage

In September 2017, the State Council issued the, which points out: Shanxi Province will improve the mechanism forindustry transformation, upgrading and promotion and strive to become a pioneer in energy revolution; the state will give priority to Shanxi Province in terms of major productivity deployment, especially the strategic emerging industries, and support Shanxi Province to build intelligent manufacturing innovation center and innovation center for aluminium magnesium alloy and other new materials; and Shanxi Province will improve the policy system for the transformation and upgrading of the conventional industries, implement the pilot integrated reform of coal-power-aluminum-material, and drive the transformation and upgrading of aluminum industry.

Based on the GF No. [2017] 42 Document, the prerequisites of “no export of aluminium ingots and no storage of liquid aluminum”, and the overall thinking of realizing the local transformation and cluster development of resources and building an intensive, circular and eco-friendly industry system with aluminum final products at the core, Shanxi Province drafted the Implementation Plan for the Pilot Integrated Reform of Coal-Power-Aluminum&Magnesium-Material Industry in Shanxi Province, and submitted it to National Development and Reform Commission and Ministry of Industry and Information Technology for approval. At the end of March 2018, the Commission of Economy and Information Technology of Shanxi Province issued the Action Plan 2018 for Non-ferrous Metal Industry in Shanxi Province, which aims to promote the aluminium capacity replacement, encourage enterprises having launched alumina projects or acquired bauxite resources (e.g. Chinalco Group and SPIC Group) to actively transfer their in-house aluminium capacity to Shanxi Province, and give priority to the those enterprises having transferred their aluminium capacity to Shanxi Province in terms of supply of bauxite resources.

III. Analysis of the existing problems in the development of alumina industry in Shanxi Province

1. Incomplete industrial chain structure

At present, the chain of alumina industry in Shanxi Province is top-heavy to some extent, characterized by serious imbalance between the upstream and downstream scale. Specifically, at the upstream, the available reserve of bauxite resources ranks the first place nationwide and the alumina production the second place nationwide, but the aluminium at the midstream and aluminum processing at the downstream are relatively small in scale, ranking in the middle and last places respectively.

2. Inadequate enterprise concentration

The industrialization of alumina in Shanxi Province is inadequate. There are a total of 15 alumina producers in Shanxi Province, consisting of 7 with 2-3 million t/a, 3 with 1-2 million t/a and 5 with below 1 million t/a, and the maximum capacity of 3.4 million t/a. Among them, all the enterprises with capacity below 1 million t/a are located in Lvliang City, Shanxi Province, and 4 enterprises with capacity below 0.5 million t/a are located in Xiaoyi City in Lvliang City. In contrast, Shandong Province boasts leading alumina capacity and production and high capacity concentration – there are a total of 5 alumina producers with a total capacity of about 28.5 million t/a, consisting of Binzhou High-tech Aluminium Co., Ltd. (with capacity of 18 million t/a, affiliated to Shandong Weiqiao), Chiping Xinfa Huayu Alumina Co., Ltd. (with capacity of 6 million t/a, affiliated to Xinfa Huayu) and other 3 enterprises with minimum capacity of 1 million t/a.

3. The alumina industry in Shanxi Province relies heavily on enterprises from other provinces

Among the 15 alumina enterprises in Shanxi Province, 4 are held by central enterprises as Chinalco and SPIC, with a combined capacity of 8.8 million t/a (34.17% of the total capacity in Shanxi Province), 5 are held by private enterprises from other provinces, with a combined capacity of 13 million t/a (50.49% of the total capacity in Shanxi Province), 5 are private enterprises held by individuals in Shanxi Province, with a combined capacity of 2.85 million t/a (11.07% of the total capacity in Shanxi Province), and the remaining 1 is held by provincial state-owned enterprise, with a capacity of 1.1 million t/a (4.27% of the total capacity in Shanxi Province).

4. The extension of industrial chain is difficult

The supply-side structural reform and production restriction due to environmental impact are constraining the development of aluminium industry in Shanxi Province. Since 2013, the State Council and its ministries and commissions have successively issued various documents as the,,,,, etc., in order to continuously and deeply promote the elimination of capacity excess of aluminium. On June 13, 2018, Premier Li Keqiang chaired an executive meeting of the State Council, which made arrangements for the implementation of the 3-Year Action for the Blue Sky Defense Campaign, proposed to ban new capacity of steel, coking and aluminium in Beijing-Tianjin-Hebei Region and surrounding areas, and increased the criteria for elimination of excess capacity.

The uncompetitive production electricity price fails to attract the aluminium projects. The aluminium industry is energy-intensive and sensitive to the electricity price, but the coal power dominates the current power generation industry, which still consumes coal. In the cost structure of coal-fired power generation, the coal accounts for about 70%, making the coal price dominate the cost of coal-fired power generation. Despite a major province in terms of coal and thermal power generation, Shanxi Province still fails to realize the real integration of coal and power, the industry structure of “market-oriented coal and power quota” fails to give full play to the advantage of resources endowment in Shanxi Province, and the coal used by thermal power plants is generally purchased at the market price, which is at a high level among the major coal provinces in China. Especially in 2017, thanks to the favorable macroeconomic situation in China and the continuous implementation of the supply-side structural reform, the coal price soared from the second half of 2016 and kept at a high level, which caused the extensive losses of power plants in Shanxi Province. Specifically, 35 out of 42 major power plants (200,000 KW and above per unit, 83.3%) in Shanxi Province suffered from a total net loss of about RMB 6 billion.

5. The environmental issues in production are obvious

As the construction of environmental facilities will increase the production cost of alumina products, some enterprises, for the purpose of high profits, directly discharge the untreated industrial wastewater into local rivers and dump the red mud and waste residue with serious pollution into the valleys, which cause serious damage to local ecological environment and significantly impaired the willingness of local governments and people for investment promotion. In November 2016, the program 30-minute Economic News of CCTV2 gave a detailed disclosure of the environmental pollution by wastewater, red mud and residue from Shanxi Huaxing Aluminum Co., Ltd. affiliated to Chinalco and Shanxi Aluminum Industry Co., Ltd. affiliated to SPIC, which re-arouse the public concern for environmental issues in alumina industry. （to be continued）