Nanshan Aluminum Demonstrated Determination of Transition and Upgrading



Nanshan Aluminum Demonstrated Determination of Transition and Upgrading

On April 5, Nanshan Aluminum published annual report for 2015. According to the released data, in 2015 the company fulfilled 13.67 billion yuan of operating income, down by 2.75% on Y-o-Y basis, net profit attributable to parent company was 560 million yuan, down by 37.45%.

According to the report, suffering from the impact of industry-wide downturn, price fall in aluminum ingot and aluminum oxide markets reduced the company’s operating income, but increase in the company’s output offset the impact brought by price fall, the operating income only dropped by 2.75%. On the other hand, due to delayed impact of aluminum price on product cost, the margin of the company’s cost reduction was less than the margin in operating income, resulting in 37.45% fall in net profit. Industry capacity surplus resulted in grim market situation

In fact, as China’s industrialization process continued to make progress, demand for aluminum products will present rapid growing trend, in the next several years consumption volume of China’s aluminum products will rise each year. Just as what the company’s sales data in its annual report showed, the company basically adopted “basing production on sales” method to organize production, the sales-output ratio of actual aluminum products is 99.87%, wherein output of profile products grew by 3.73% than the same period last year; output of hot roll products grew by 7.85% than last year; output of cold roll products grew by 17.82% than last year; output of aluminum foil products grew by 3.98% than last year.

Nevertheless, viewed from industry level, there is no sign of change in the current capacity surplus situation, what’s more, fierce industry competition resulted in fluctuation in market prices, therefore the future market situation will remain grim. It has been learned that, in 2015 aluminum price presented overall downward trend, and recorded the lowest level in three years. According to relevant data, in 2015 aluminum enterprises sustained continual loss, the loss margin narrowed to certain degree, against the macro background of total volume surplus and transition & adjustment in the domestic economic structure, in 2015 aluminum price continued to fall and for a certain period reached the second lowest point since 1991, aluminum smelting enterprises experienced mounting operation pressure. Obviously, volume increase and price drop are the main reasons leading to falling company profit.

According to statistics of the China Nonferrous Metals Industry Association, from January to November 2015, China’s aluminum smelting enterprises (including aluminum oxide, electrolytic aluminum and secondary aluminum) lost 2.07 billion yuan even after offseting loss with profit, though the loss is 6.85 billion yuan less than the same period last year, the whole industry’s loss situation for the 4th consecutive year can hardly be reversed.

Therefore, against the background of difficulty for the whole industry, it is in fact not easy for Nanshan Aluminum to accomplish the existing performance. However, opportunity also accompanies industry challenge. According to the annual report, in order to cope with the industry’s overall dilemma, the company also drafted “product adjustment” and “structural upgrading” routes, this strategy coincides with the state government’s call to propel enterprises to make transition toward high-end manufacture, meanwhile it will also bring positive impact to the company’s future positioning and standing in the industry.

In its industry analysis, the company mentioned that, in the future the focus of aluminum processing enterprises is still high added value product sectors, for instance high speed railway, automobile, aviation, and marine engineering etc. Because these products have high technological content and therefore considerable profit, many same-industry rivals vied with each other to participate, which aggravated intensity of competition in the high added value industry.

Some industry insiders said, the fast-paced development of automobile light weight, aviation sheet & plate products and railway transport will bring considerable growth potential to the aluminum product industry. Firstly, China’s air quality is deteriorating day by day, urban “smog” alarm frequently sounded. According to relevant data, output and sales of new energy vehicles presented astonishingly rapid growth, from January to November 2015, China’s new energy vehicle output was 279,200 sets, up by 4 times on Y-o-Y basis. China’s new energy vehicle industry has finalized its development road map for the next decade. According to forecast, in 2025 in the global context, the demand for automobile body sheet may reach 12000kt, in which China’s demand is about 3500kt. In April 5, the soaring of new energy automobile shares on the stock market once again verified this growth potential.

Secondly, in the aspect of aviation sheet & plate products, between 2014 and 2033 the global demand for newly added wide-body passenger/freight aircraft is about 9300, accounting for 30% in total number of new aircrafts in the same period. The total population of global aircrafts is expected to double, wherein 35% of the growth comes from the Asia region. China has entered a fast continual development period for aircraft manufacture, the domestic manufacture of large aircraft and general aircraft & private aircraft are growing each year, the size of aviation aluminum product market will steadily expand.

Thirdly, as traffic congestion worsens, the development of domestic railway transport has picked up speed, market demand has expanded. According to statistics from the National Development and Reform Commission, currently 27 cities are planning urban railway transport, in which 22 cities have obtained approval from the State Council for railway transport construction planning, whose total investment tops 800 billion yuan, total distance is about 2500 km. Meanwhile, benefiting from high speed railway “Walking out” and “One Belt One Road” strategy, it will embrace a period of rapid growth. According to mid to long term plan of the Ministry of Railways, by 2020 China will establish rapid passenger transport passages between provincial capitals and large & middle sized cities, plan “Four Horizontal & Four Vertical” passenger transport dedicated lines and intercity passenger transit system, construct over 16000 km of passenger transport dedicated lines. Internationally, according to statistics of the International Union of Railways, the future planned mileage of high speed railway worldwide will top 30000 km, there is vast space in the global market.

In view of the situation, confronting the transition opportunity against industry dilemma, in its annual report Nanshan Aluminum disclosed that, in the future the company will gradually phase out and discard low added value products, in the aspect of aluminum products it will actively propel transition from building material product to industrial material product; in the aspect of aluminum sheet, strip, and foil, implement thinning of can stock, consolidate competition advantages, and make transition toward automobile sheet; intensify efforts in developing carbide, quicken the pace to enter automobile, aviation and marine engineering fields. Meanwhile, based on demand volume, market conditions of transport, machinery, equipment and consumer durables products, make timely adjustment and rationally allocate capacity.

Meanwhile, the company actively carried out R&D and certification for aviation-use aluminum. In 2015, the company unfolded in-depth cooperation with domestic and overseas well-known aviation enterprises including Airbus, Boeing, and Commercial Aircraft Corporation of China, with development targeting at medium to thick sheet for aviation structural parts, it has occupied leading position in domestic aluminum processing enterprises.

Judging from info from all sources, the year 2016 will surely be a year with both challenges and opportunities for the industry to which the company belongs. According to some opinions, as one of the leaders in the industry, Nanshan Aluminum boasts intrinsic competition advantages, meanwhile, after making long years of deployment in new energy vehicle, railway transport and aviation-use aluminum product aspects, its route of product structure adjustment and upgrading & transition has become particularly clear-cut, and it is also expected to occupy industry leading position in these major application fields.