Aluminum Industry Sample Report

Primary Aluminum

Through the end of November Bao Alumium Group had produced a total of 210,000 MT of aluminum, a 15.57% increase over the same period of a year ago. For the whole year Bao Aluminum expects to produce a total of 231,300 MT.

Some aluminum industry analysts have predicted that in 2005 primary aluminum prices will rise 15%, that China will become a net importer of aluminum again and that total net imports in 2005 could be as much as 700,000 MT. These experts are predicting that for the first time in ten years primary aluminum may be selling for $2000/MT. The elimination of the 8% rebate on VAT taxes and the imposition of a tariff on exported aluminum (there is one report speculating that there will be a 5% export tariff on unwrought aluminum) are expected to lead to a decline in new aluminum smelter capacity next year and a further acceleration of the scrapping of uncompetitive smelters; there are some suggestions that the Chinese government will force underperforming aluminum smelters to close next year. Other analysts opine that despite these developments China will continue to export large quantities of primary aluminum. Yet another view is that the "losses outweigh the benefits" because increasing exports of aluminum (1) really means increased exports of power, which is in short supply in China, and (2) will lead to greater inflows of foreign exchange, which in turn will increase pressure on China to adjust the exchange rate of the Yuan.

Corresponding to the large increases in stocks of primary aluminum in LME warehouses in Singapore, in anticipation of the change in the export rebate of VAT taxes, there has been a large decrease in the stocks of primary aluminum in the SHFE, from 99738 MT as of 12/3 to 66560 MT as of 12/24.

Bauxite and Alumina

The Guizhou branch of Chalco will produce a total of 850,000 MT of alumina for all of 2004.

Through December 23 rd Henan Province had banned 249 small bauxite mines which did not have licenses to operate.

Aluminum Consumption

Analysts with Antaike Information Development Co. are predicting that there will be a large drop in consumption of aluminum in 2005 because of a noticeable slowdown in building activity and a decline in purchases of cars. Other analysts continue to predict that Chinese domestic aluminum consumption will grow at a rate of 10%/annum for next three years and that by 2008 China's consumption of aluminum will have grown from 6 million tpy this year to 9.3 million tpy.

International Aluminum Trade
and Investment

Large aluminum smelters have not shelved their export plans for 2005, even though exports will be less valuable with the elimination of the 8% VAT rebate and the imposition of an export tariff. According to an official with Yunnan Aluminum, which did $169 million U.S.D. in export sales last year, competition in the domestic market will grow and prices are expected to drop domestically; because the export market is important to large aluminum smelters such as Yunnan Aluminum, these Chinese smelters will continue to export to maintain their market share internationally.

Another analyst estimates that exports of primary aluminum will drop 50% to 700,000 MT in 2005 from 1.5 million MT this year due to the imposition of a 5% tariff on exports of primary aluminum from China and the elimination of the 8% rebate on exports of primary aluminum from VAT taxes paid; still other analysts suggest that the decline in exports will be more pronounced to a total of 600,000 MT in 2005.

Traders are concerned that there may be no profits left for exported aluminum from China after the elimination of the 8% rebate on VAT taxes. The elimination of the rebate will result in an increase in costs of approximately 1100 Yuan to a total cost/MT of approximately 16500-17000 Yuan/MT; at present a MT of aluminum is selling for
15800 Yuan.

One official with a Chinese smelter said that with the imposition of a 5% tariff on exports of primary aluminum, their export costs will rise by 800 Yuan/MT, which will mean that "they won't be able to export aluminum" because it will be unprofitable. An official with Lanzhou Aluminum expressed that they would not be able to export aluminum in 2005; this year they exported 10,000 MT of aluminum.

According to statistics compiled by the Chinese Customs the largest export destinations for Chinese primary aluminum and aluminum alloy for the first 11 months of 2004 and the percentage increase in exports to those countries compared to the like period of a year before, were as follows:

Destination

Total Exports Jan-November, 2004 (MT)

% change

Primary Aluminum
South Korea
Hong Kong
Japan
Taiwan
Singapore
U.S.
413,498
297,128
179,085
121,321
86,632
11,018
+7.3%
+40.4%
+32.1%
+87.7%
+322.9%
n.a.
Aluminum Alloy
Japan
Hong Kong
Malaysia
108,617
58,884
9,625
+2.9%
+49.6%
+174.0

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