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China's aluminum consolidation drive may benefit Chalco

Keywords: Tags  Aluminum Corp. of China, Chalco, aluminum, aluminum consolidation, Zhongfu Industrial, Shenhuo Group, Jiaozuo WanFang Aluminum Manufacturing, Henan Wanjo Aluminum Henan Yugang Longquan Aluminum

SHANGHAI — The drive for industry consolidation and restructuring by China’s leadership is expected to benefit big companies, such as Aluminum Corp. of China Ltd. (Chalco), according to market participants.

On Jan. 22, the country’s Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC) and 10 other ministries set out guidelines for the future structure of nine industries, including aluminum, rare earths and steel.

According to the guidelines, China aims to have a few aluminum business conglomerates with "core competitiveness and international influence" by 2015, and have the top 10 smelters accounting for 90 percent of the country’s total production capacity.

"The reason why governments want to stress this again (is) new leadership will do more reform. ... This policy will not immediately change the near-term supply landscape (but) it is encouraging to see the government once again become determined to tackle the issue," Helen Lau, a senior analyst at UOB Kay Hian (Hong Kong) Research Ltd., said in a report.

"This is undoubtedly good news for big companies like Chalco, as it is paving the way for their mergers and acquisitions," according to an analyst at Shanghai Metals Market Information & Technology Co. Ltd. (SMM).

Other likely players in consolidating China’s aluminum industry are smelters in Henan province, where combined production of the lightweight metal would be higher than Chalco’s.

To meet the target of the top 10 smelters accounting for 90 percent of national capacity, "major smelters in Henan province may have to be merged into one, as China has dozens of smelters of that similar size," a second SMM analyst said, adding that such talk had been initiated years ago.

Henan is China’s largest province for aluminum production, with the major five companies being Zhongfu Industrial Co. Ltd., Shenhuo Group Co. Ltd., Jiaozuo WanFang Aluminum Manufacturing Co. Ltd., Henan Wanji Aluminum Co. Ltd. and Henan Yugang Longquan Aluminum Co. Ltd.

All of these companies have an annual capacity ranging from 700,000 to 800,000 tonnes, according to SMM statistics.

Zhongfu is publicly traded on the Shanghai Stock Exchange, while both Shenhuo and Jiaozuo are listed on the Shenzhen Stock Exchange.

A version of this article was first published by AMM sister publication Metal Bulletin.

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