As some companies are not afraid of overcapacity, they still plan to build large-scale projects. Nine ministries and commissions jointly issued the “Nine Sectors Emergency Notice to Stop Overcapacity and Repeated Construction in the Electrolytic Aluminum Industry” on April 20th and halt the proposed construction of electrolytic aluminum projects. .

Conflict between supply and demand

This is not the first time the country has taken measures against the excess production capacity of electrolytic aluminum. On November 25, 2003, six ministries and commissions including the National Development and Reform Commission, the Ministry of Finance, the Ministry of Land and Resources and the People's Bank of China jointly issued the “Several Opinions on Stopping Blind Investment in the Electrolytic Aluminum Industry Violating Regulations” (hereinafter referred to as “opinions”). Approval of electrolytic aluminium and alumina projects in line with industrial policies and development plans.

However, in the following years, a large number of electrolytic aluminum enterprises emerged throughout the country and their production capacity soared. One important reason why the "Opinions" failed to prevent the rapid growth of production capacity is that the profits of the national aluminum smelting industry before 2008 are very substantial.

Data from the China Nonferrous Metals Industry Association shows that from 2002 to 2006, international aluminum prices have been rising. The average annual LME spot price is US$1,350, US$1431, US$1,716, US$1,898, and US$2,569 per ton respectively. Driven by price increase and capacity growth, the total profit of the aluminum smelting industry was 10.6 billion yuan, 11.9 billion yuan, 28.1 billion yuan, and 36.9 billion yuan from 2004 to 2007, respectively.

Before 2008, China and the world economy continued to grow at a rapid rate, and the problem of excessive growth in production capacity was overshadowed by the high growth in consumption. The contradiction of oversupply in the aluminum market in China was not prominent. Since 2008, with the outbreak of the financial crisis, the long-standing contradiction of oversupply has begun to appear.

Since 2008, aluminum prices have entered a downward path. From 2008 to 2010, the average annual LME spot price was $2,572, $1,665 and $2,173 respectively. From 2008 to 2010, the total profits of the aluminum smelting industry fell to 12.4 billion yuan, 5.9 billion yuan and 11.8 billion yuan respectively.

Executive problems

The Ministry of Industry and Information Technology disclosed the proposed electrolytic aluminum project of 7.74 million tons, but the actual number is far more than these. According to a senior executive of Chinalco (601600.SH, 02600.HK), according to information from various localities that are not completely reliable, there are currently 44 electrolytic aluminum projects planned to be constructed in China, and the total production capacity exceeds 20 million tons.

Knowing that excess capacity and low profits have caused companies to continue investing in new projects?

According to the above-mentioned high-level introduction of China Aluminum, at present, about half of electrolytic aluminum production capacity in the country is located in the eastern region, and the electricity price in the eastern region is very high. Electricity prices currently account for more than 40% of the cost of electrolytic aluminum, while the western region has lower energy costs such as electricity prices. The transfer of production capacity to the west is still profitable.

At present, most of the electrolytic aluminum projects under construction and proposed in the country are located in the west. In 2010, the electrolytic aluminum production capacity under construction reached 4.44 million tons, of which 68% were located in the five western provinces.

Once the proposed project is halted, the plan of transferring electrolytic aluminum to the west will be greatly affected. However, the implementation of the "New Deal" has been questioned. In fact, in 2003, the government’s policy to prevent illegal construction of the electrolytic aluminum industry was not well implemented.

In an interview with a senior executive of Zhongfu Industry, he said: “In the past few years, many electrolytic aluminum projects were reported under the names of other projects when they were launched. It would be difficult to obtain approval if they were reported in the name of electrolytic aluminum.”

On the other hand, the existing unpaid pre-built projects do not seem to have been punished. The “Opinions” issued by the Electrolytic Aluminum Regulations in 2003 required land and resources administrative departments, environmental protection administrative authorities, industry and commerce, and banks to restrict electrolytic aluminum projects that did not meet industrial policies and development plans. However, in the actual implementation process, local governments are willing to provide various assistance to the black household project in order to promote the growth of local GDP.

A senior Chinese aluminum company told reporters earlier that an important reason for the significant increase in production capacity is the promotion of local governments. If a certain place has bauxite resources, companies want to acquire resources, they must first invest in alumina projects in the country. The electrolytic aluminum project was launched to extend the industrial chain as much as possible. In fact, it may not be suitable for the development of electrolytic aluminum.

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