Pingguo Aluminum Faces Dilemma

Chinalco Guangxi Pinggjuo Branch is an exemplary company of Chinalco. Many of its indicators including technology, management standard, and profit rank in leading position in the industry, but such a pace-setter company is also facing the dilemma of overstock of Alumina products, and loss in electrolytic aluminum business.

“There is no more room to place our Alumina products.” Mr. Jiang from Guangxi Pingguo Aluminum recently told the reporter with obvious worry.

It has been learned that Pingguo Aluminum currently has an annual production of 2.5 million tonnes of Alumina, and 120,000 tonnes of electrolytic aluminum. Based on existing electrolytic aluminum production capacity, only 240,000 tonnesAlumina can be absorbed locally, other Alumina has to be shipped externally.Several years ago when the reporter was holding interview at Guangxi Nannan Aluminum,Nannan Aluminum strongly demanded that Alumina produced by Pingguo Aluminum should be more retained in Guangxi, rather than being shipped to outside as primary product. In the twinkling of an eye, the demand situation dramatically changed. In the past it’s a case of“The daughter of an emperor does not worry about finding a husband”, so to speak, today huge quantity of Alumina is overstocked, Guangxi Pingguo Aluminum’s status quo reflects the fact that China’s aluminum is deeply trapped in the quagmire of capacity surplus.

Compared with Alumina, Pingguo Aluminum’s electrolytic aluminum business is even worse.“Last year our electrolytic aluminum business lost 180 million yuan.” One director of Pingguo Aluminum informed the reporter on the condition of anonymity that: “Today producing each tonne of electrolytic aluminum will incur a loss of more than 3000 yuan. Over the past years we were lucky to benefit from Alumina business; otherwise Pingguo Aluminum would have to face a worse fate.”

The main reason leading to the loss of Pingguo electrolytic aluminum business is too high electricity price. Generally speaking, electricity price cannot exceed 40% of the cost of electrolytic aluminum, yet because electricity price in Guangxi is excessively high inside China, at peak time the electricity price cost exceeded 60% of electrolytic aluminum cost. At present Pingguo Aluminum’s electricity price has reached 0.58 yuan per kWh, more than double of the 0.256 yuan per kWh before 2005.

“In order to lower electricity price cost, Pingguo Aluminum put forward the suggestion of seeking direct power purchase, however despite three times of instructions from GuoShengkun,the then Secretary of the Party Committee of Guangxi Zhuang Autonomous Region, the matter was still not solved.” said one industry insider from Pingguo Aluminum. Guangxi Baise City once put forward coal-power-aluminum integration, yet due to poor quality of locally produced coal, this perfect wish became only empty talk.

In addition to high electricity price, national electrolytic aluminum production capacity increased sharply over the years in the recent decade, the supply surpassed demand, this is also one of the key reasons that Pingguo electrolytic aluminum sustained loss. In 2012 the national electrolytic aluminum production capacity reached 26 million tonnes, the national production reached over 20 million tonnes,whereas total social demand was 19 million tonnes, this resulted in continual decline in electrolytic aluminum price, by May in this year the price of electrolytic aluminum dropped to 14000 yuan per tonne, over 90% electrolytic aluminum enterprises sustained loss, in 2012 electrolytic aluminum enterprises in Henan Province recorded a loss of 3 billion yuan. Under the impact of huge loss, electrolytic aluminum enterprises were forced to suspend or reduce production. On the other hand, as an upstream product of electrolytic aluminum, Alumina also subsequently suffered huge overstock.

On the one hand enterprise production faces loss, on the other hand, despite the loss in electrolytic aluminum production, Pingguo had to manufacture electrolytic aluminum at full capacity, in order to support local economic development. It has been learned that Pingguo County Aluminum Industrial Park’s aluminum door production has developed to 3 million frames each year.

The reporter learned during the interview that several years ago, Guangxi experienced a power shortage, as a high energy consumption enterprise, Pingguo Aluminum had to suspend electrolytic aluminum business. “Later the global financial crisis broke out, power supply became relaxed, chief officials of Baise Municipal Government paid many visits to persuade us into restarting operation, after the suspension and re-opening, we lost 100 million yuan. Today the electrolytic aluminum business records loss each year, we have to continue despite the loss, ensuring production and stability is our social responsibility as a central enterprise, but we have to absorb this loss by ourselves. Although Guangxi government began to give us subsidy in electricity price at 0.04 yuan per kWh since the second quarter in last year, but compared with loss these subsidies are simply too inadequate to be helpful.” One chief person told the reporter on the condition of anonymity.