2009 China’s Aluminum Fabrication Industrial Development Report,

1 Overview of Aluminum Fabrication Industry

Despite the impact of 2008’s financial crisis on China’s aluminum fabrication industry, China’s output of aluminum products remained the world’s largest in 2009, against overall steady growth within the Chinese economy. Total yield in 2009 reached 16.503 million tons, an increase of 15.6% over 2008 levels, at a rate 5.8% lower than 2008.

The pace of development in the aluminum fabrication industry was slow earlier in the year but gradually become faster. During the first and second quarters, most aluminum fabrication companies experienced unprecedented pressure due to a lack of orders and an increased inventory. Output in the first half of the year amounted to 7.36 million tons, having increased by 7% over the same period in 2008, at a growth rate down 31.3%. The situation began to improve in the third quarter, after which rapid growth was seen in November and December in the fourth quarter.

In 2009, Guangdong, Henan and Shandong provinces remained the top three aluminum producers. Annual increases in production in Guangdong and Henan provinces were lower than the national average, but Shandong achieved rapid output growth of 36.42%, accounting for 2.03% of the national total.Among the top ten provinces, Jiangsu and Zhejiang provinces also experienced quick growth, while Liaoning and Fujian provinces saw only small growth; negative growth was seen in Sichuan and Chongqing, down 10.9%and 3.2%, respectively. Further to this,Guangxi province fell out of the output top ten,with output decreasing from 248,000 tons to 214,000 tons, -down 13.7%. Meanwhile, production in Hunan province reached 269,900 tons, an increase of 19.2%, pushing its ranking from 11th in 2008 to 9th.

Product structures in the Chinese aluminum fabrication industry experienced substantial changes in recent years, as displayed in the following trends:

(1) The proportion of rolled product output to total output of fabricated products continues to increase, from 23.8% in 2000, 34% in 2007, to 37.5% in 2008.

(2) The production of high-precision aluminum plates and strips has increased. The Shandong Nanshan hot rolling project has produced continuously high yields. The quality and output of can bodies, plates and strips for tank caps fabricated by this project have reached an advanced international level for products within the same category, and has obtained the approval of Pacific, Boll, Crown and major can-making companies in Korea and Japan.2009 yield exceeded 70,000 tons.

In 2009, Zhejiang Dongliang New Material Co., Ltd. produced 41,000 tons of PS Plate substrates, most of which were first-grade products. Shanghai Huxin Aluminum Co., Ltd. (Alcoa Shanghai) obtained the Total Quality Certification of Tetra Pak (Sweden) for its 0.00636mm aluminum foil, becoming only the second Chinese company to be approved by Tetra Pak. Cast-rolled plates and rolls are used as raw materials, and their light gauge foil becomes the only one in the world to have gained approval by using cast-rolled materials. These achievements will disprove the claim that castrolled materials cannot be used in the production of top grade PS Plate substrates and Tetra Pak aluminum products.

(3) China has completed the construction of new world-class high-speed railway lines, including the Guangzhou-Wuhan and Beijing-Tianjin lines. The profiles of the train body and the tubes used in the cantilevers of the transmission catenary network represent the successful application of extruded products. The glass curtain walls of an area of over 100,000 square meters on Burj Dubai, the world’s tallest building, are all produced and installed by Chinese companies. The two world leading products are evidence of the high standard and competitive placing of Chinese aluminum products.

Due to the economic crisis, a drop in price of primary aluminum, depreciation of the U.S.dollar, and trade frictions, there has been an overall decline in the export of aluminum products. In 2009, China exported 1.393 million tons of aluminum products, a decrease of 26.35% over 2008. The export of aluminum plates and strips dropped the most, falling 44%,with aluminum foil dropping by 13%. The export of tubes decreased by 75.7%, but this was probably because the base number was not accurate. In 2008, a number of electrolytic aluminum companies exported hollow ingots under the category of aluminum tubes in order to obtain tax rebates for tube exports, leading to an artificially high aluminum tubes export figure.In 2008, the export of aluminum profiles fell to its lowest point in recent years, but the situation has improved after China raised the tax rebate rate for profile exports. 2009 saw a recovery in aluminum profile exports, they increased to 462,000 tons, growth of 75.7% over 2008.

China maintained positive levels of net exports of total aluminum products and in each individual category in 2009. Total net exports stood at 812,000 tons in 2009, a decrease of 36.41% over 2008.

Table 1 Imports and Exports of Chinese Fabricated Aluminum Products in the Past Three Years Unit: 10,000 Tons

2 Analysis of Economics of the Aluminum Fabrication Industry

China recently issued the Adjustment and Promotion Plan for the Non-ferrous Metal Industry. The Plan states that crisis management and industrial promotion shall be combined and that the market shall be stabilized in accordance with the overall requirements for guaranteeing growth, expanding domestic demand and adjusting structure; it also emphasizes the principles of controlling total quantity, eliminating regression, enhancing technological transformation, and promoting structural adjustments,optimization and upgrades.

At the end of 2009, several state ministries and commissions joined forces to accelerate the elimination of old production capacity. Various measures were to be adopted, including land supply, energy (electricity, water, gas) price discrimination, the introduction of an environmental tax, and not offering authorization or certification.

To reduce the impact of the financial crisis on aluminum product exports, and to improve the export environment, China has continuously adjusted export rebate rates for aluminum products. The export rebate rate for aluminum plates and strips was raised from 11% to 13%at the end of 2008. The fabrication trade for aluminum bars, profiles and wires resumed on February 1, 2009, and the export rebate rate for aluminum profiles returned to 13% from 0% on April 1, 2009; meanwhile, the export rebate rate for aluminum foils increased by 2% to 15% on June 1, 2009.

The introduction of this series of policies has great importance for reducing the impact of the global economic crisis on China’s aluminum fabrication industry, and maintaining stable and rapid development.

In 2009, Anhui Newchangjiang Investment Group established an aluminum fabrication base in Erdos in Inner Mongolia, with a total investment of RMB 10 billion. Projects to be set up include production of high-precision aluminum, high-voltage anode foils for electrolytic capacitors, etched foils, high-precision aluminum plates and strips, automobile wheel hubs, multifunctional foamed aluminum for automobiles, and automobile precision castings. The Energy and Chemical Engineering

Base in Eastern Ningxia will also develop aluminum fabrication, with a planned investment of RMB 8.5 billion and a production capacity of 500,000 tons, producing aluminum plates and strips, light gauge aluminum foils, aluminum curtain walls and wheel hubs, and other items. This will form a complete industrial chain including coal, electricity, electrolytic aluminum, aluminum fabrication and coal chemicals. Benefiting from the rich electrolytic aluminum and energy resources, Qinghai Northwest Aluminum Co., Ltd. plans to invest RMB 5.9 billion in setting up a production project that boasts a large-size, competitive strength, ultra-light and high-quality rigid aluminum alloy materials, including top-grade aluminum plates and strips, aluminum foils,large-size extruded products and forged products; it has a production capacity of 500,000 tons.

Frontline aluminum profile companies in Guangdong’s Dali area have accelerated domestic expansion since 2008. In addition to consolidating their existing market power in Jiangsu, Zhejiang, Guangdong and Guangxi provinces, they launched successive new projects in Anhui, Hubei, Hunan, Fujian and elsewhere in 2009. The subsidiary of Guangdong Weiye Aluminum Co., Ltd. in Jiangxi has accelerated the construction of its second and third stage projects, which will raise the company’s production capacity in Jiangsu to over 100,000 tons per year. The 50,000 tons per year aluminum profile project (first-stage) in Jiangsu’s Pei County, invested by Huachang Aluminum Co., Ltd., has been put into operation, and its second-stage project commenced construction on 15 May 2009. The foundation stone ceremony for the wholly-owned subsidiary of Guangdong Xingfa Aluminum Profiles(Group) Inc. in Jiangxi was held in Jiangxi Yichun Economic Development Zone on September 26. The company will mainly produce profiles for industrial and construction use on a site of over 400,000 square meters in land area,an investment of RMB 1 billion and a planned output of 100,000 tons. The first stage is ex-pected to be put into operation in 2010 with a production capacity of 50,000 tons, while the second stage expected in 2014. The foundation stone ceremony for the wholly-owned subsidiary of Guangdong Xingfa Aluminum Profiles(Group) Inc. in Chengdu was also held recently, with the Southwest Airport Development Zone in Chengdu’s Shuangliu County hosting the September 28 event. The company plans to invest at least RMB 1 billion into the entire project, which is expected to produce an annual aluminum profile yield of 100,000 tons by 2014.

China is now in a period of rapid industrialization and urbanization. There is great demand for high-performance aluminum products in projects that contribute towards people’s livelihoods and the development of a low-carbon economy; this situation is expected to last for a long time. China is the world's largest aluminum market, and therefore active development of the aluminum fabrication industry is encouraged.

(1) Developing markets in second- and thirdtier cities as well as rural areas. In 2009 there was a downturn in foreign demand and increased protectionism in international trade,however Chinese aluminum fabrication companies intensified efforts to develop the domestic market to good effect. As early as 2008, after an analysis of the negative influence of cancelling the export rebates for international markets, Guangdong Fenglv Aluminum Co., Ltd.quickly decided to focus on second- and thirdtier domestic cities as well as rural areas. This involved adjusting product structures and market positioning, and actively cultivating and supporting the sales market. Guangdong Silver 100 Aluminum, Xinhe Aluminum and Huachang Aluminum, and other enterprises were also active in the development of rural markets.

(2) Develop new markets for aluminum applications. The push for a low-carbon economy is a new driving force in the consumption of aluminum products, and has brought about specific demand for solar panel frames, plates for solar panel backboards, profiles for the bases of new energy-saving street lamps, profiles for energy-saving aluminum windows and doors,profiles for pedestrian overpasses, and aluminum for building templates and scaffolds. Aluminum foil used in solar thermal conversions has been successfully developed for the first time in China, and will be widely applied in large-size solar water heaters, sea water desalination, waste water purification, and the purification of torrents and rain water.

China’s aluminum fabrication industry has made great improvement in terms of productivity and technical equipment through the introduction of new equipment and technology, and independent innovation based on digestion and assimilation of overseas technologies. Highquality plates and strips, foils, tubes, rods, profiles, powder and forged products produced by us have been used for transportation, construction, packaging, electronics, military projects,and further afield. China’s fabricated aluminum products have a distinct competitive edge in transportation, construction and packaging.

On 26 November 2009, the construction of Burj Dubai, the world’s tallest building, was essentially completed. Burj Dubai is 828 meters (2,684 feet) in height and has a glass curtain wall with an area of 142,000 square meters, all of which was produced and installed by Chinese companies. More than 3,000 tons of profiles was used to construct the curtain wall,all of which was made from materials produced by Xingfa Aluminum Co., Ltd. This curtain wall project has universal acknowledgement as the tallest of its kind, and most complex, and represents not only the pride of the Chinese construction, decoration and curtain wall industries, but also the pride of Chinese aluminum fabrication industry. It once again proves the credentials of Chinese aluminum products on the global stage.

In December 2009, the Wuhan-Guangzhou passenger railway line was put into use. It has independent intellectual property rights and is the world’s fastest and longest high-speed railway completed at once. The line is 989 kilometers in length and can achieve a designed speed of 350 kilometers per hour. The profiles used in the train body, as well as the tubes used in the cantilevers of the transmission catenary network, and the aluminum products used in rail station decoration were all made in China, further evidence that Chinese aluminum products have attained first-class standards globally.During a visit to China in October 2009,Vladimir Putin, Prime Minister of Russia,signed a Sino-Russian memorandum on highspeed railway development, by which China will provide assistance to Russia in building high-speed railways with independent intellectual property rights. This move will help to expand China’s presence in overseas markets.

New products with high technology specifications are still received well by the market.Shanghai Huxin Aluminum Co., Ltd. (Alcoa Shanghai) obtained the Total Quality Certification of Tetra Pak (Sweden) for its 0.00636mm aluminum foil, becoming the second Chinese company to be approved by Tetra Pak (Xiashun Aluminum were the first, who use imported hot rolled materials). The aluminum foil produced by Huxin meets Tetra Pak requirements for various indicators and is proved to be qualified for full-speed smooth production at various operating speeds. Cast-rolled plates and rolls are used as raw materials, and the light gauge foil is the only one in the world to have gained this quality approval for the usage of cast-rolled materials.

Steel aluminum compound materials developed in 2009 have not only filled the gap in the Chinese market, but have also attained the German standard for various technical indicators. The first export contract for 3,000 tons of this material was recently signed. In addition to the stable profiles market of large automobiles, aluminum materials for electric railways, and the military sector, sales of aluminum materials for shower cubicles, trailer coaches, windows and doors, as well as foil containers are also well positioned to perform well in the international market.

Stimulated by the construction of rail transit and aeroplanes, large-size extruder production,which initially appeared several years ago, became an ever bigger trend in 2009. 5,600 ton extruders produced by Shandong Conglin Group, 9,000 ton extruders by Shandong Nanshan, and 7,000 ton extruders by Guangdong Weiye were each launched; 10,000 ton extruders by Qinghai Northwest Aluminum passed relevant tests at the end of 2009; meanwhile,15,000 ton extruders by Yankuang Group and 11,000 tons extruders by Jilin Midas are in rapid development. Further to this, Liaoning Zhongwang Group has plans to produce 22,500 ton and 12,500 ton extruders, Qinghai Northwest Aluminum have similar plans for 16,000 ton extruder, and a number of companies in Guangdong intend to develop 8,000+ ton extruders. Large extruders became a new investment Hotpoint within the Chinese aluminum fabrication industry in 2009; this impressed the market.

It is reported that by 2012, China will have 40 extruders of 5,000+ tons and 10 extruders of 10,000+ tons. The intensive production of large extruders will certainly lead to increased competition between companies, and will force some companies to cease production and pull out of the market.