China secondary aluminium production may feel global economic pinch in 2012

China's secondary aluminium output could fall this year because of a slowdown in the global economy and "lack of confidence" among buyers, a senior executive from one of the country's biggest producers told Metal Bulletin.

"This year is a bit special, and will probably end up with a year-on-year decline after year-on-year growth [in output] of more than 10% in the last few years,’’ Chen Ching Chih, general manager of Ye Chiu Metal Recycling, said.

Figures for China's secondary aluminium production vary widely from source to source, but Ye Chiu puts the volume at 4.68 million tonnes in 2011. Ye Chui produced 270,000 tonnes last year.

The company, a unit of the Ye Chui Group, listed on the Shanghai Stock Exchange in April this year to raise funds for a 666 million yuan ($105 million) investment to double capacity to 600,000 tpy. Its plant is in Taicang, north of Shanghai in Jiangsu province.

The company said the global economic slowdown had pinched its markets by encouraging European rivals to compete for business in Asia. Ye Chiu exports about half its production.

"Western markets are shrinking, partly due to the Euro-zone crisis, so European companies are coming to Asia to undersell their products,’’ Chen said in an interview at the Taicang plant.

Spain’s Befesa and Italy’s Raffineria Metalli are among the European competitors, according to Chen.

Ye Chiu's order books, which are normally well filled into August at this time of the year, have been booked only up to July.

"There has been a marked hesitation and a lack of confidence in making orders from our customers," Chen said.

It is selling aluminium alloy ingot at around $2,220-2,250 per tonne fob China, down about $70-80 per tonne from average first-quarter prices, Chen said.

Industry consolidation

Shanghai Sigma Metals is considered to be Ye Chiu's main competitor in a Chinese market which is dominated by thousands of small-scale, family-owned operations.

The recycling and secondary aluminium sector is expected to consolidate and Ye Chiu is already on talks to acquire companies in the near future, Chen said. He declined to identify any target companies.

And like other companies in the scrap sector, especially in eastern China, it is managing rapidly rising labour costs.

"A few years back, we already came to see the magnitude of rising labor costs in China,’’ Chen said. "Therefore, along the years we have been raising our degree of automation, in scrap sorting and every other process.’’

Apart from being used to building more capacities, the funds raised from its share listing in Shanghai will also help bolster its financial position to finance its domestic sales, Chen said. With domestic customers from within China, Ye Chiu has to bear payment terms resulting in a cash turnover rate of up to six months, Chen said.