Henan Province Aluminum Enterprises Initially Finalized the Transition Path as “Aluminum +X”



Henan Province Aluminum Enterprises Initially Finalized the Transition Path as “Aluminum +X”

In early July, Zhongfu Industrial published a notice, which revealed that it would seek finansing of 5 billion yuan through private placement, in which 3.5 billion yuan is used for investment and construction of Henan Cloud Computing Data Center project, the remaining 1.5 billion yuan will be used to pay off interest-bearing liability of the listed company. According to Zhongfu Industrial’s notice, riding the tide of a round of technology development and IDC industry development trend, it has become an inevitable choice for Zhongfu Industrial to quickly finish strategic deployment of self-owned data center, the data center will become Zhongfu Industrial’s key performance growth point and power for future development, and will help improve Zhongfu Industrial’s risk resistance ability and profit-earning ability. In fact, against the background of sluggish aluminum price for several consecutive years, in addition to Zhongfu Industrial, major aluminum enterprises in Henan including Jiaozuo Wanfang are all seeking enterprise transition while deeply exploring advantages of coal, power and aluminum integration. Compared with Zhongfu Industrial, Jiaozuo Wanfang has made new progress on the road of transition.

According to Jiaozuo Wanfang’s public notice on May 27, the first prospecting well of Jiaozuo Wanfang’s subsidiary energy unit in HAHA area in Morocco started drilling on November 15, 2014 local time, in mid January 2015 there was indications of oil and gas presence, at the end of March it carried out test oil operation for 1556~1900m, at present this well has been completed. Jiaozuo Wanfang has finished deployment of the second and third wells in this area, the drill rig is on the road of shipping, and operation can start in the near future.

In Mongolia, Jiaozuo Wanfang’s prospecting services at No. 23, No. L-1, and No. 23-S zones are under way according to schedule of the contract, the “Product Ingredient Contract” in Mongolia No. 2 zone is expected to be signed very soon, it is expected drilling will begin in August 2015, it will obtain industrial oil and gas flow in October 2015, and it will start formal mining in 2016.Meanwhile, efforts by Jiaozuo Wanfang in aluminum aspect are also under way.In the abstract of its annual report for 2014, it also mentioned: "During the report period, departing from optimizing power supply structure, the company strived to strengthen internal management of the thermal power plant, lower coal consumption in power generation, increase power generation volume, whole year power generation volume increased by 20% on Y-o-Y basis, which plays decisive role in fulfilling operation target for the company."

In fact, in order to improve the ability to control the market, cope with the impact of continual drop in aluminum price on enterprise profit-earning, Jiaozuo Wanfang also tried actively to properly arrange futures hedge business, through optimizing purchase management, lower coal purchase cost. Furthermore, Jiaozuo Wanfang also made efforts in improving product structure, and enhancing product added value aspects, in order to continually promote transition & upgrading of its product structure. Enterprises that are paying continual attention to aluminum also include Zhongfu Industrial, in the past several years, Zhongfu Industrial also continually invested in high precision aluminum sheet & strip hot continuous rolling project, high precision aluminum sheet & strip cold rolling project, and high performance special aluminum product project, while replenishing working capital, it reinforced profit-earning ability of its own aluminum industrial chain.

According to Liu Libin, Deputy Executive President of Henan Province Nonferrous Metals Guild, restricted by electricity price and the impact of current domestic aluminum market demand, Henan Province’s aluminum industry continued across-the-board loss, but as the coal, power and aluminum integration construction made further progress and coal price dropped, the loss suffered by Henan Province aluminum industry shrank to certain degree on Y-o-Y basis. In the eyes of Liu Libin, as manufacture enterprise, aluminum transition should preferably center on aluminum itself, especially in the downstream fields of aluminum business, based on market demand, it should make transition toward deep intensive processing of aluminum, on the one hand it can enable full utilization of the original aluminum assets, on the other hand it will also explore new opportunities for the transition & upgrading of aluminum industry.

Against the background of continual downturn in macro conditions of the domestic economy, aluminum capacity surplus would further deteriorate, against such ongoing adverse circumstances, our province’s main aluminum manufacturers Yichuan Electricity and Wanji Holdings are also improving enterprise’s profit-earning ability in deeply developing high added value products in aluminum downstream sectors and increasing power generation business aspects, in order to provide guarantee for transition & upgrading.

Furthermore, even Shandong aluminum industry, which has long boasted price advantage due to high percentage of self power supply, against the background of continual plunging aluminum prices, also is forced to start transition toward high technology and high added value product fields such as aviation use aluminum products. On the basis of extending aluminum industrial chain, and increasing high added value aluminum products, adding new industry units also becomes another route for aluminum enterprises to seek new profit growth points, Jiaozuo Wanfang chose oil and gas, whereas Zhongfu Industrial chose cloud computing.

According to Zhang Baoying, Chairman of Jeweldia Consultants Co., Ltd, Zhongfu Industrial is an aluminum enterprise in the province which carried out coal, power, and aluminum integration relatively early in the industry, the advantage in coal, power, and aluminum integration once enabled Zhongfu Industrial to enjoy advantages of industrial deployment spanning ten years. But as other aluminum enterprises completed coal, power, and aluminum integration construction in the province, Zhongfu Industrial’s advantage becomes no longer so evident. According to Zhang Baoying, the aluminum capacity surplus condition did not show any improvement, instead as the aluminum capacity in Xinjiang region was further released, the low level of aluminum price will continue, under such circumstance, since the continual loss of aluminum business can hardly be improved, the option of making transition to other industries is obviously more attractive.

Take IDC service supplied by Internet Cloud Computing Center as an example, in the past 6 years, compound growth rate of China’s IDC market reached 38.6%, during the period of 2012~2013, suffering from impact of declining macro economy, the overall market growth slowed down, with the government’s macro policy guidance, in 2014 IDC market grew quickly, market size reached 37.22 billion yuan, Y-o-Y growth reached 41.8%. In the eyes of Zhongfu Industrial, at present, the market of traditional aluminum industry is trapped in downturn, propelling industrialization with informatization, and promote informatization with industrialization, walking a new industrialization road become an inevitable choice. Riding the tide of a new round of technology development and IDC industry development trend, it has become an inevitable choice for Zhongfu Industrial to quickly finish strategic deployment of self-owned data center. Zhongfu Industrial considered that, the data center will become key performance growth point and new power of future development for Zhongfu Industrial, and will help improve Zhongfu Industrial’s risk resistance ability and profit-earning ability.

Nevertheless, the industry still has doubts about Zhongfu Industrial’s transition to cloud computing, according to Xiao Yuhang, specially engaged researcher of Xinhua News Agency’s Outlook Think Tank, as an aluminum enterprise, it basically has no overlapping business with cloud computing, Zhongfu Industrial’s transition to cloud computing may face the problems of inadequate industry experience and management experience, whether or not it can bring new profit growth points still depends on the outcome.