Aluminium producers face plight
By Yu Qiao (China Daily)
Updated: 2004-08-17 09:08

China's embattled aluminium makers are facing a profit plunge and possibly even losses as a result of soaring costs and sagging aluminium prices, according to an industry organization.

The nation's top 10 aluminium companies posted a meager profit of 100 million yuan (US$12.1 million) during the first half of this year, showed statistics from the China Non-Ferrous Metal Industry Association. Four of these companies were in the red during the period.

"One-third of all the aluminium producers in China experienced losses in June," said Wang Huajun, an official from the metal association.

Twenty-four aluminium firms in China have stopped production completely due to heavy losses so far this year, Wang said.

There are still more than 100 aluminium producers in China at present.

"Hikes in power prices represent the biggest factor in their plight as aluminium manufacturing is a sector that requires heavy electricity consumption," he told China Daily.

Electricity prices for industrial sectors in China were raised by 4.6 per cent per kilowatt-hour on average last month to ease a nationwide power drought.

Aluminium companies as well as other manufacturers in China will be required to pay special charges to the State, into a special fund for agriculture-use power and construction of the mammoth Three Gorges hydropower station, starting in June.

Aluminium producers are also suffering from lofty prices of alumina, the raw material used to make aluminium, on the domestic market, Wang said.

Although Aluminium Corporation of China Ltd (Chalco), the nation's sole alumina producer, cut the aluminium price to 3,750 yuan (US$453) per ton on August 1 from 4,300 yuan (US$519), the figure is still much higher than under 3,000 yuan (US$362) before October last year.

Half of the alumina demand in China is dependent on imports because of excessive aluminium production capacity build over the past two years.

The aluminium sector is one of the most overheated industries as identified by the government as well as steel and cement.

"However, frenzied investment in the aluminium sector has been tamed initially by both the government's macro economic controls and market forces," said Zhu Dan, an analyst with Antaike Information Development Co Ltd, the Beijing-based metal consulting firm.

Aluminium prices in China have been tumbling since May in line with fluctuations in the international market and also because of over supply in the domestic market.

Domestic aluminium prices declined by almost 14 per cent to less than 1,520 yuan (US$184) per ton in June on average from that in April.

"China's tax rebate cuts on aluminium exports have also added pressures on domestic aluminium manufacturers," Zhu said.

The nation slashed a tax rebate on aluminium exports to 8 per cent at the beginning of this year from 15 per cent as part of measures to control overheating investment in the aluminium sector.

The tax rebate will possibly be axed to zero during the second half of this year if the government wants to further cool down the sector, she said.

However, this will help speed up the industry's shake-up as more small and low-technology companies will be phased out and big players become more competitive, Wang said.

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