Aluminum Industry I

PostDate：2020-12-09

Al is a silver-white metal, the third most abundant in the earth's crust after oxygen and silicon. Aluminum has a low density, is called light metal, and is the most abundant metal element in the earth's crust. As the largest non-ferrous metal in the world, aluminum is widely used in construction, packaging, transportation, electric power, aerospace and other fields. It is an indispensable basic raw material for national economic construction, strategic emerging industries and development of national defense science, technology and industry.

The aluminum industry chain mainly consists of four links: bauxite mining, alumina refining, primary aluminum production and aluminum processing. In the upstream mining industry, underground bauxite is dug up and processed into alumina; In the midstream smelting industry, alumina becomes electrolytic aluminum; After the calendaring-process, electrolytic aluminum is processed into aluminum materials, including aluminum foils, aluminum plates and aluminum profiles. Finally, aluminum products are marketed to consumers.

Upstream Bauxite: Domestic Ore Shortage, Foreign Ore Expansion

Bauxite is abundant in the world, mainly in countries near the equator, including Australia, Guinea, Brazil, Vietnam and Jamaica, which together account for 64% of the world's reserves. China's reserves only account for 3% of the world, but the distribution is highly concentrated, with Guangxi, Henan, Shanxi and Guizhou provinces accounting for more than 90% of the total. China is the world's largest consumer of aluminium, accounting for about a third of global consumption.

According to the data, in 2018, China accounted for 2.9% of the global bauxite reserves, which belongs to the tail level, with Guinea accounting for 27.4%, Australia accounting for 23%, and Guinea accounting for 27.4%.

Australia leads the world in bauxite production at 29.4% and China ranks second, accounting for 20.8%, followed by Guinea and Brazil.

Electrolytic Aluminum: Capacity to the Ceiling

The capacity utilization rate of China's electrolytic aluminum industry was 89.33% in 2019, the highest since 2011, and the lowest was 81.05% in 2016. However, the high utilization rate of electrolytic aluminum capacity is caused by the decline of both production capacity and output: the national electrolytic aluminum capacity was 39.86 million tons at the end of December 2018, down 10% from two months ago, which is related to the requirement of the Ministry of Industry and Information Technology that backward production capacity that has not been replaced by production capacity from 2019 will no longer be regarded as compliant production capacity.

China's electrolytic aluminum production capacity was about 41 million tons by the end of 2019, with an operating capacity of 36.4 million tons. It is expected to increase production capacity by 3.48 million tons and shut down production capacity by 1.68 to 2.18 million tons in 2020. According to the relevant documents of the Ministry of Industry and Information Technology, the capacity ceiling of electrolytic aluminum in China has been formed, and the new capacity needs to be replaced in the future.

Alumina Plays A Decisive Role in the Cost Trend

The production cost of electrolytic aluminum mainly consists of alumina, electricity, pre-baked anode, other auxiliary materials and labor cost. In the early stage, due to the gradual rise of the proportion of self-provided power in electrolytic aluminum, along with the implementation of LAN and direct power purchase, the national electricity price gradually converged, the proportion of electricity in the cost gradually declined, and the original cost structure led by electricity changed. Since 2018, alumina has become the first cost item of electrolytic aluminum production instead of electricity, playing a decisive role in the cost trend.

Alumina: Inside and Outside Have Capacity Put In, Concentration Degree Is Very High, Supply Continues to Be Surplus

In 2018, the global alumina production is 130 million tons, distributed in China 54.85%, Oceania 15.61%, Europe 12.82%, South America 7.66%, Asia and Africa (excluding China) 6.85%, North America 2.2%. From 2004 to 2018, the compound annual growth rate of alumina in the world reached 5.47%, among which China contributed 17.82% and foreign 0.76%, or 91.22% of the global increase. But China's alumina production grew only 1.2% in 2018 and virtually nothing in 2019. China's alumina production rose 13.9% in September from a year earlier to 6.56 million tons. Alumina production between January and September fell 1.9 percent year on year to 54.246 million tons. Overall Chinese alumina daily output recorded a small increase.

The global alumina production concentration is quite high: in 2018, the top 10 in the world accounted for 75% and the top 5 in China accounted for 80%, among which the industry leader Aluminum Corporation of China accounted for 18.9% of the country's alumina production. However, the high concentration in China and the global alumina industry has not been translated into bargaining power, which is because the major enterprises are still expanding their output, and the other reason is that the alumina of many enterprises is mainly used for the internal production of aluminum and the proportion of take-out is low.

Alumina supply surplus is still the main theme. In 2020, domestic and overseas alumina production is expected, overseas import window is likely to continue, the pattern of excess alumina at home and abroad remains, and the price is under pressure. However, considering the large flexibility of alumina production and the increasing concentration degree, the supply control ability becomes stronger and stronger. Once the price of alumina falls below the cash cost, high-cost alumina plants will adjust the supply by reducing production to support the price. Similarly, if prices rebound and profits improve, pressure capacity will soon return to production, and expectations of new capacity will also weigh on prices.

Compared with primary aluminum, recycled aluminum has obvious advantages in energy conservation and environmental protection: each ton of recycled aluminum can save 95% of energy, reduce 91-97% of carbon dioxide emissions, solid waste emissions are also greatly reduced, so recycled aluminum has been widely used in the world, especially in Europe and the United States.

In 2019, China produced 7.15 million tons of recycled aluminum, of which 54% will come from old domestic aluminum waste, 28% from new domestic aluminum waste and only 18% from imported aluminum waste. Domestic waste aluminum accounted for 82%, an increase of 33 percentage points over 2010. Domestic waste aluminum is growing and becoming the mainstream of waste aluminum supply.