Goodbye aluminum smelting, hello fabrication and extrusion

Dec 09, 2005 | 03:06 PM | Vivian Teo

Shanxi Yangquan Aluminium Co., a midsize Chinese smelter with ambitions to grow, made a strategic switch earlier this year that reflects a growing trend in China's aluminum industry.

Faced with a business environment that had changed radically since the start of 2004, Shanxi Yangquan abandoned plans to expand its primary aluminum capacity to 250,000 tonnes a year from 68,000 tonnes and instead decided to more than triple its extrusion capacity to 50,000 tonnes from 15,000 tonnes within two years.

"Current government policies are not very favorable for the aluminum industry, so we've decided to focus more on downstream production," a senior Shanxi Yangquan executive said.

Beijing has rolled out a series of measures during the past 18 months designed to crack down on exports of primary aluminum as it attempts to save energy and control investment in the sector.

Measures including higher export taxes, stricter credit controls and the cancellation of toll-trading tax benefits have combined with high power costs and record spot alumina prices of more than $600 a tonne to make operating conditions increasingly difficult for many producers. As a result, more smelters are turning to fabrication, which isn't affected by the government crackdown.

"The primary aluminum business is hard, and going into the downstream industry will help stabilize earnings," said Heng Kun, an analyst at Everbright Securities Co.'s Research Institute in Shanghai.

In addition to Shanxi Yangquan, some of China's largest primary aluminum producers are looking to grow their fabrication businesses, including Lanzhou Aluminium Co. Ltd. and China Aluminium Group (Chinalco), the single-largest shareholder of Aluminium Corp. of China Ltd. (Chalco).....