More Than 90% of The Aluminum Capacity Replacement Index Has Been Used In New Projects



More Than 90% of The Aluminum Capacity Replacement Index Has Been Used In New Projects

In April 2015, the MIIT issued the No. 127 document, proposing an equivalent or decrement replacement system for the aluminum industry. According to asianmetal.cn, until May 15, China's total aluminum capacity replacement index was about 2.4755 million tons, where the transactions of 2.2355 million tons (90.3% of the total replacement capacity) have completed, and the remaining 240,000 tons (about 9.7% of the total replacement capacity) of aluminum capacity replacement index to be transferred by Qinghai Jinyuan and Shandong Qixing will be all used in new aluminum projects. We predicted that considering the supply and demand reform policy that tightens new capacity approval and environmental protection and whether the operating capacity will be seriously shut down, China's actual aluminum output will be between 31.27-36.41 million tons and the global aluminum gap may reach 2.30-7.44 million tons in 2018.

In April 2015, the MIIT issued the No. 127 document, proposing an equivalent or decrement replacement system for the aluminum industry. On April 20, 2015, the MIIT issued the Notice on Issuing Capacity Replacement Implementation Measures for Some Serious Overcapacity Industries (MIIT No. 127 document of 2015), which prohibited new capacity approval for steel, cement and aluminum industries and required that equivalent or decrement replacement must be implemented for new projects of these serious overcapacity industries and that decrement replacement must be implemented especially in environmentally sensitive areas such as Beijing-Tianjin-Hebei, Yangtze River Delta and Pearl River Delta.

Equivalent or decrement replacement is an important means to strictly control new aluminum capacity. The so-called equivalent capacity replacement refers to the elimination of a certain amount of backward or excess capacity equivalent to that of the new project to be built, and the so-called decrement replacement refers to the elimination of a certain amount of backward or excess capacity greater than that of the new project to be built. The MIIT attempts to achieve the goal of prohibiting new capacity such as aluminum by establishing a national aluminum capacity replacement index trading platform. What's worth noting is that the capacity replacement index for new (reconstruction, expansion) projects of these industries must be enterprise capacity listed in an MIIT announcement or a provincial task completion announcement in and after 2013, and that backward capacity that has exceeded the elimination deadline specified by the government shall not be used for capacity replacement.

Until the end of April, about 2.2355 million tons of aluminum capacity replacement had been completed. According to sci99.com, 44.673 million tons of aluminum capacity has been built in China, including 38.4345 million tons of operating capacity, and the capacity operation rate is 86.04%. According to asianmetal.cn, China's aluminum capacity replacement index was about 2.4744 million tons until May 15. Currently, the transactions of about 2.2355 million tons (90.3% of the total replacement capacity) of aluminum index have completed, and the remaining 240,000 tons (about 9.7% of the total replacement capacity) of aluminum capacity replacement index will be transferred by Qinghai Jinyuan and Shandong Qixing. The completed transactions of the 90.3% capacity replacement index are classified into the following three types:

1) Inter-provincial transactions of 491,000 tons, accounting for about 19.83%. East Hope Baotou Rare Earth Aluminum is building an aluminum project with an annual capacity of 500,000 tons in Guyang. This plant has purchased about 391,000 tons of aluminum capacity replacement index from Hunan Chuangyuan and Taishan Aluminum. Inner Mongolia Mengtai Aluminum has purchased 100,000 tons of aluminum replacement index from Jiangsu Datun.

2) Transactions of 534,500 tons within the provinces, accounting for about 21.59%. Henan Province saw the elimination of the largest amount of aluminum capacity, which was about 534,500 tons (accounting for about 21.59%). However, the aluminum index of Henan Province can only be sold in Henan Province and a large part of the eliminated index has been purchased by Henan Yugang Longquan Aluminum.

3) Transactions of 1.21 million tons within the groups, accounting for about 48.88%. A total of about 1.21 million tons of aluminum index from Qinghai Xinheng, Sichuan Qiya, Fushun Aluminum and Zhejiang Huadong were sold within the groups respectively.

If the policy is strictly implemented, more than 5 million tons of operating capacity may be forced to shut down. At present, the legally-registered capacity index across the country is 40.08 million tons, including 29.87 million tons registered with the MIIT and 10.21 million tons of compliant capacity and specially-approved project capacity registered before May 2013. If production is performed in strict accordance with the compliant capacity index, up to 5.41 million tons of operating capacity will be shut down and operable capacity will be reduced to 33.02 million tons. Meanwhile, the impact of environmental policy (2+26 cities) will also bring about a reduction in actual production by 2 million tons during the heating season.

Aluminum capacity will go from excess to shortage, and the capacity gap may reach more than 2.3 million tons in 2018. Meanwhile, considering the high cost and difficulty of shutting down operating capacity, the maximum operating capacity may appear in the context where the current operating capacity won't be forced to shut down and the construction of new capacity requires replacement index. Therefore, considering the supply and demand reform policy that tightens new capacity approval and environmental protection and whether the operating capacity will be seriously shut down, China's actual aluminum output is expected to be between 31.27-36.41 million tons and the global aluminum gap may reach 2.30-7.44 million tons in 2018.