Electrolytic aluminum output increases at a faster rate

Latest statistics from NDRC (National Development and Reform Commission) show that electrolytic aluminum output was 9.505 million tons, increased by 9.7 percent year on year, and the increase rate has risen 4.1 percent year on year.

Electrolytic aluminum output has been increasing in recent years even though China started trying rein in the industry several years ago.

Electrolytic aluminum output was 12.985 million tons in 2009, 15.650 million tons in 2010, and17.555 million tons in 2011.

China has been the largest electrolytic aluminum producer since 2001. The State Council announced they will stop new projects in this field for three years starting in 2009, and on April 20th last year, nine state ministries jointly announced they will stop new electrolytic aluminum projects and cancel preferential policies issued by local governments. Following the announcement, investigation groups were appointed to enforce implementation. 23 projects with 7.74 million tons of production capacity and 77 billion Yuan of investment were blocked.

But Bao Zhongnan, vice president of Adfaith Management Consulting Inc. said that most of the 23 projects have been put back into construction, and for the sake of GDP growth, local governments have even started more new projects.

In 2011, China had more than 25 million tons of production capacity but capacity utilization was only 70 percent. "Low capacity utilization means that the industry has an excess of production capacity, the market doesn't need that much supply," said Fan Yanxia, an analyst in the non-ferrous metal industry.

Excessive production capacity has led to the price of electrolytic aluminum being eroded, with, average domestic prices of 15460 Yuan per ton at the end of July, a decrease of 600 Yuan per ton.

And according to Li Xun, an analyst at Mysteel, there is no room for profit at prices under 16000 Yuan per ton. "Even in the western provinces, where electricity is cheaper, companies can barely make ends meet at 15000 Yuan per ton,"Li added.

According to Li, even companies who failed to invest in electrolytic aluminum projects can still acquire land through preferential policies issued by local governments, and just holding the land, those companies can profit off the appreciation in land value or engage in other speculative businesses.