Chinalco looks at overseas growth on the back of growing supply and slow consumption growth in China

Chinalco sees the company’s future overseas, as told by Ao Hong, deputy general manager of Aluminum Corp. of China, or Chinalco in an interview. The company is looking at business opportunities overseas as the domestic market is crippled by metal aluminium oversupply and higher raw material costs.

“We’re under huge pressure, so the company has to accelerate reform and cut costs internally,” Hong said. While Chinalco is still earning profit in its businesses, many smaller firms are making losses due to low aluminium and higher raw material prices.

Recently, government has re-allocated the capacity of Chinalco. The company acquired Yunnan Metallurgical Group Co. to add extra capacity. Chinalco Chairman Ge Honglin had earlier told in a conference that the acquisition would expand the aluminium capacity to about 8 million metric tons. If the capacity is achieved, Chinalco will take over the place of China Hongqiao Group as the world’s biggest aluminium producer.

Aluminum has slumped in the fourth quarter of 2018 on concern the U.S.- China trade war will impact the growth. According to state-backed researcher Beijing Antaike Information Development Co., the global aluminium market, including china will swing to a surplus next year after a deficit in 2018. A surplus market will put pressure on aluminium prices, whereas production cost will rise in China because of declining bauxite reserve due to stricter environmental standards imposed on miners by the government.

“It’s very important to expand overseas exploration, mergers and acquisitions,” Ao said on the sidelines of the conference, as this year is the first time it’s been cheaper to buy the raw material from abroad.

Chinalco is studying the feasibility of an alumina project in Indonesia using local bauxite.  He also said that the company may also develop alumina or aluminium projects in Guinea after this year’s Boffa bauxite investment. These projects are aimed at securing the raw material availability.  

Yu Wei, deputy director for China’s Ministry of Industry and Information Technology’s raw materials bureau, talked about limited opening of new capacity and relocating idled capacity abroad for profitability. These developments are driven by the warning increase of aluminium output in China. Antaike predicts 350,000 tonnes surplus next year, from a deficit of 410,000 tonnes in 2018.

Worldwide, the researcher projects a surplus of 450,000 tonnes in 2019, instead of the expected shortfall of 1.6 million tons.

Goldman Sachs Group Inc. on the other hand is not seeing a huge aluminium surplus. The bank cited looming winter output cuts in China, U.S. sanctions on Rusal, and disruption at Norsk Hydro ASA’s alumina refinery in Brazil as factors that will put pressure on supply.

Antaike analyst Yao Xizhi said during the Yunnan conference that Chinese aluminium consumption growth of 4.9 per cent in 2018 is the lowest rate in a decade, which indicates the possibility of Chinese majors looking at opportunities overseas.