Limited Production Policy Becomes Clear And Acute Shortages Of Alumina Exceed Expectations



Limited Production Policy Becomes Clear And Acute Shortages Of Alumina Exceed Expectations

As the macroeconomic situation is still difficult and there is no substantial stimulus prompted by news, the aluminum prices have fluctuated widely between 16,000-17,000 yuan/ton. Recently, Henan Province announced limited production across the province during the heating season and the Ministry of Environmental Protection also declared that 30% limited production during the heating season will not overlap the policy of closing down illegal capacity. These policies have exceeded market expectations. We believed the implementation of unexpected policies will stimulate aluminum prices to further go up.

The news on September 16 reported that the Deputy Director of the Regional Coordination and Heavily Polluted Weather Response Division, Department of Air Environment Management, Ministry of Environmental Protection told the reporter that 30% limited production will not overlap the policy of closing down illegal capacity because limited production means legal capacity. This news has exceeded market expectations and the province most affected by it is Shandong Province.

Table 1: Details about limited production of aluminum during the heating season

　Annual design capacity (10,000 tons)Annual running capacity (10,000 tons)Limited capacity (10,000 tons) Taiyuan Donglv Aluminum10103 Zhaofeng Aluminum23237 Weiqao900650195 Xinfa21015747 Wudi Qixing1470 Zhengzhou Faxiang840 Zhongfu Industrial504712 Jiaozuo Wanfang434212 Yugang Longquan847213 Henan Wanji605412 Linfeng Aluminum25257.5 Yongdeng Aluminum13134 Shenhuo66330 Longxiang Aluminum700 Xichuan Aluminum2000 Tianyuan Aluminum1000 Total15431137312.5

Source: Nonferrous Metals R&D Center of Yide Research Institute

3.125 million tons of aluminum capacity need to be further cut during the heating season if calculated according to the latest news. In addition to the nearly 3.5 million tons of illegal capacity that has already been shut down, as high as 6.625 million tons of aluminum capacity will be shut down. Considering that some new aluminum capacity will be launched, the annual running capacity of aluminum is expected to decline to about 34 million tons by the end of 2017.

On September 11, the Implementation Plan for Off-peak Production in Industrial Enterprises of Henan Province in Autumn and Winter 2017-2018 (Draft for Comment) was introduced. The Plan specifies that the off-peak period is from November 15, 2017 to March 15, 2018 and requires that 13 aluminum plants should limit production by more than 30% respectively, which will be calculated based on the number of electrolytic cells and verified by on-site supervision and spot checks and 11 alumina enterprises should limit production by more than 30% respectively, which will be calculated based on the number of production lines and verified by on-site supervision and spot checks.We believed that as all the aluminum capacity of Henan Province is in full compliance with the policy, only the number of shut-down cells of enterprises needs to be inspected during the heating season. In theory, the number of cells previously shut down shall be included. In addition, the Draft for Comment mentioned that limited production will be implemented in 13 enterprises in Henan. We estimated the number was calculated based on independent legal entity, but we believed it's likely that the limited capacity during the heating season is separately calculated based on aluminum enterprises rather than enterprises across the province. That is to say, the capacity of aluminum plants that have been fully shut down should not be shared among other aluminum plants. Specific data is provided below:

Limited production of aluminum during the heating season in Henan

　Annual design capacity (10,000 tons)Annual running capacity (10,000 tons)Limited capacity (10,000 tons) Zhengzhou Faxiang840 Zhongfu Industrial504712 Jiaozuo Wanfang434212 Yugang Longquan847213 Henan Wanji605412 Linfeng Aluminum25257.5 Yongdeng Aluminum13134 Shenhuo76330 Longxiang Aluminum700 Xichuan Aluminum2000 Tianyuan Aluminum1000 Total39629060.5

Source: Sublime China Information, Nonferrous Metals R&D Center of Yide Research Institute

Limited production of alumina during the heating season in Henan

　Annual capacity (10,000 tons)Limited capacity (10,000 tons) Zhongmei Aluminum4513.5 Chinalco Zhongzhou Aluminum25075 Chinalco Henan Aluminium Fabrication20060 Kaiman Aluminum22066 East Hope25075 Yixiang Aluminum6018 Youse Huiyuan8024 Heungkong Wanji14042 Total1245373.5

Source: Nonferrous Metals R&D Center of Yide Research Institute

The limited production of alumina in Henan has not been expanded compared with the previous "2+26+3" data. The only addition to the enterprises subject to the limited production of aluminum is Shenhuo Aluminum, but its current operating rate of aluminum is only 43%. So, it meets the limited production requirements and doesn't need to shut down more electrolytic cells.

According to the Action Plan, from this October to next Match, the average PM2.5 concentration in the air pollution transmission cities of Beijing, Tianjin and Hebei shall drop by more than 15% year-on-year, and the number of heavy pollution days by more than 15% year-on-year. Among the major cities, the average PM2.5 concentration in Beijing, Tianjin, Shijiazhuang and Taiyuan shall drop by 25% year-on-year and the number of heavy pollution days by more than 20% year-on-year; the average PM2.5 concentration in Tangshan, Baoding, and Xiong'an New Area shall decline by 22% year-on-year and the number of heavy pollution days by more than 20% year-on-year.

We've made bold speculation on whether limited production will be implemented across Shanxi and Shandong if their air quality indexes don't meet the standards:

Alumina: Shanxi, the main area of alumina production, could be little affected by limited production during the heating season. But if air quality doesn't improve during the heating season, limited production may take place throughout Shanxi and Shandong. If limited alumina production is implemented throughout Shanxi, Shandong and Henan during the heating season, then the limited production will be as high as 14.95 million tons. However, only 10.25 million tons will be cut according to the original limited production plan.

If limited alumina production is implemented throughout Shanxi and Shandong

　Annual running capacity (10,000 tons)Proposed limited capacity (10,000 tons) Shanxi Fusheng Aluminum Co., Ltd.8024 Chinalco Shanxi Branch22066 Shanxi Zhaofeng700 Shanxi Xinfa Chemical Co., Ltd.20060 Shandong Dongyue Energy Jiaokou Feimei Aluminum Co., Ltd.24072 Xiaoyi Tianyuan Chemical Co., Ltd.252.5 East Hope Group Co., Ltd. (Jinzhong Chemical)16048 Senze Coal & Aluminum6018 Aokaida Chemical257.5 Shanxi Xiaoyi Taixing Industrial Co., Ltd.103 Xing'an Chemical25075 State Power Investment Shanxi Aluminum Co., Ltd.28084 Xiaoyi Huaqing Aluminum Co., Ltd.00 Xinghua Technology9027 Shanxi Huaxing Aluminum Co., Ltd.20060 Qixing Group Alumina00 Chiping Xinfa Huayu400120 Shandong Weiqiao Aluminum1350330 Chalco Shandong Branch15050 Longkou Donghai Alumina17050 Lubei Chemical8025 Total40601122

Source: Nonferrous Metals R&D Center of Yide Research Institute

Original limited production in Shandong and Shanxi

　Annual running capacity (10,000 tons)Limited capacity (10,000 tons) Zhaofeng Aluminum7021 Weiqiao1450435 Xinfa400120 Chinalco Shandong15050 Lubei Chemical8025 Total2150651

Source: Nonferrous Metals R&D Center of Yide Research Institute

If limited production is implemented in aluminum plants throughout Shanxi and Shandong

　Annual running capacity (10,000 tons)Proposed limited capacity (10,000 tons) Huaze Aluminum & Power4212.6 Huasheng Aluminum226.6 Taiyuan Donglv103 Zhaofeng Aluminum236.9 Shuozhou Energy6.51.95 Weiqiao Aluminum & Power650195 Shandong Xinfa Huaxin15747.1 Nanshan Aluminum8425.2 Zouping Qixing Aluminum61.8 Shandong Huayu Aluminum & Power206 Total1020.5306

Source: mymetal.net

Aluminum: Similarly, if limited production of aluminum is implemented throughout Shanxi and Shandong, a total of 3.665 million tons need to be cut, while only 3.125 million tons will be cut according to the original plan.

If limited production is implemented across the province, alumina will be significantly affected, exacerbating the shortages of alumina. As a large quantity of imported alumina cannot be shipped to China in a short period, alumina prices will rise sharply. Although the implementation of limited production across the province won't largely affect the capacity of aluminum, a tight equilibrium will continue in 2017 and acute shortages will occur in 2018. In addition to rising costs caused by rising prices of raw materials, we predicted that if the implementation of the limited production policy exceeds market expectations, aluminum prices will be further pushed up by rising cost