Currently, the domestic electrolytic aluminum industry can be summarized by "2 growths, 3 declines, and 4 characteristics." Spot market expert Song Naichun explains that while output and consumption are growing, investment, profitability, and exports have declined significantly. The "4 characteristics" are overcapacity, cut-throat competition, financing difficulties, and barriers to market exit.
In traditional concepts, electrolytic aluminum has always been considered a high-energy-consuming and high-pollution industry. With technological development, it has now moved away from high pollution, but remains a high-energy-consuming sector. Therefore, in every government policy adjustment, electrolytic aluminum is a key target. Song Naichun noted that the average annual investment in the aluminum industry has shrunk from over 100 billion RMB previously to just over 50 billion RMB last year. Even so, aluminum production has continued to grow at a rate of 8% to 10% annually in recent years, with primary aluminum production reaching 31.4 million tons in 2015.
At the same time, as an indispensable raw material for national economic construction, the demand for electrolytic aluminum remains relatively strong. For example, extruded aluminum is now used in high-speed rail car bodies, while cast aluminum is primarily used for automotive engine blocks and cylinder heads. Additionally, the growth in consumption of aluminum sheets and foils as packaging materials is particularly evident. It can be said that China is a veritable major producer and consumer of aluminum, but currently, most aluminum enterprises, like those in other major industrial sectors, are operating below the cost line, with the entire industry essentially in a state of deficit.
"Considering enterprise differences and consumption fluctuations, aluminum prices in 2016 are likely to be between 11,000 and 13,000 RMB/ton," stated Song Naichun. He added that although the domestic economic growth is slowing down and demand growth will decrease accordingly, the acceleration of urbanization and the advancement of the "Belt and Road Initiative" will provide a certain degree of boost to aluminum demand.
Currently, aluminum prices remain relatively firm. "From the perspective of price trends, aluminum prices have bottomed out. They have cost support on one hand and rigid demand on the other." He analyzed that, in the long term, there is still significant room for growth in aluminum consumption. Statistical data from the past 10 years shows that for every 1 trillion RMB increase in the national economy, aluminum consumption grows by about 640,000 tons. Based on this, domestic experts predict that the peak of aluminum consumption will be around 45 million tons. Regarding timing, Antaike predicts this will take 8 years, while the China Nonferrous Metals Industry Association predicts 10 years.
Reaching the peak of 45 million tons means that aluminum consumption will stop growing and enter an equilibrium period. After the equilibrium period, aluminum consumption will gradually decline. Song Naichun explained that by then, the recycling capability of aluminum will be very strong, as aluminum can be reused about 20 times. With the gradual increase in scrap aluminum recovery, both the production and demand for primary aluminum may decline simultaneously. It is estimated that within the next 5 years, aluminum demand can maintain an average annual growth of about 5%, after which it will successively enter the equilibrium and decline phases.