According to Economic Daily, since last year, electrolytic aluminum enterprises have adopted flexible production to reduce inventory, with many companies vigorously promoting lightweight applications by “substituting aluminum for steel.” By implementing both flexible production and expanding consumption, the electrolytic aluminum industry has embarked on a path to resolve overcapacity, achieve industrial upgrading, and overcome difficulties.

On December 10, 2015, at a symposium of leading electrolytic aluminum enterprises organized by the China Nonferrous Metals Industry Association, 14 participating enterprises accounting for 75% of the nation’s electrolytic aluminum capacity committed to not restarting already idled capacity, further expanding flexible production scales, and ensuring that already constructed capacity would not be operational for at least one year. Since last year, to reduce inventory, electrolytic aluminum enterprises have widely implemented flexible production. According to statistics from the China Nonferrous Metals Industry Association, the scale of production cuts in the electrolytic aluminum industry reached 5 million tons in 2015, accounting for over 12% of total capacity.

Flexible Production Underway

Due to overcapacity, China’s aluminum smelting industry has been operating at a loss for three consecutive years since 2012, with losses continuing to widen. In November 2015, the three-month aluminum price on the Shanghai Futures Exchange fell to a low of 9,620 yuan per ton, hitting a 20-year low. An analyst from the China Nonferrous Metals Industry Association stated that the current average fully loaded cost including taxes for the electrolytic aluminum industry is about 12,000 yuan per ton, already higher than the current aluminum price. In regions such as Sichuan, Gansu, and Qinghai, the average loss per ton of electrolytic aluminum produced exceeds 3,500 yuan; even in Shandong, the most cost-advantageous region, the average loss per ton is close to 1,000 yuan.

Against this backdrop, for the electrolytic aluminum industry to break through and overcome difficulties, the supply side must contract capacity. This involves using market and administrative means to reduce high-cost, high-pollution capacity and improve economic efficiency through mergers and reorganizations. Thus, following copper, zinc, and nickel, electrolytic aluminum has also taken steps toward flexible production. According to Antaike statistics, by the end of 2015, idled electrolytic aluminum capacity had accumulated to 3.5 million tons per year, with third-quarter production cuts accounting for 42% of the total and fourth-quarter cuts accounting for 37%.

The effects of production cuts have already begun to show. Data released by the China Nonferrous Metals Industry Association indicate that the daily average output of electrolytic aluminum in China fell by 5,000 tons month-on-month in October 2015. Compared with June, when output was highest, the daily average output decline reached 5,600 tons. Production cuts have alleviated supply pressures to some extent.

While enterprises have banded together for mutual support, industry associations have also provided active guidance. The China Nonferrous Metals Industry Association has called on enterprises to study practical and feasible flexible production measures based on their actual situations. At the same time, to help enterprises overcome difficulties, the association has actively offered suggestions to relevant government departments, including proposing the initiation of a stockpiling mechanism and accelerating the development of supporting measures to guide uncompetitive capacity out of the market.

Wen Xianjun, Vice President of the China Nonferrous Metals Industry Association, stated that under the current circumstances, flexible production is both necessary and feasible for enterprises. Through flexible production, aluminum prices can be guided back on track, and the industry can use this opportunity to recuperate and embark on a healthier, more sustainable development path.

Great Potential for Lightweight “Aluminum Travel”

To truly free the electrolytic aluminum industry from the困境 of overcapacity, efforts must be made on both the consumption and supply sides. Expanding aluminum application and consumption is an important approach. Aluminum and its alloy processed materials possess a series of excellent characteristics, making them the most ideal “green, environmentally friendly, and energy-saving” materials for lightweighting. They can be widely used in transportation, construction, marine engineering, electronic information, home appliances, and consumer goods, with very broad prospects. Wen Xianjun noted that China’s current aluminum usage stock is only equivalent to one-tenth of that of the United States, and the per capita stock level is even lower. Compared with developed countries, there is significant room for expansion in the breadth and depth of aluminum application in China.

Taking transportation aluminum use as an example, domestic and international research shows that for every 10% reduction in a car’s weight, fuel consumption can be reduced by 8% to 10%. For heavy-duty vehicles weighing 16 to 20 tons, every 1,000 kg weight reduction can lower fuel consumption by 6% to 7. Using aluminum alloys instead of steel is the main measure for weight reduction in the global transportation industry and a key development direction for China’s transportation industry in the future. The shift to aluminum for steel in lightweighting is imperative. Currently, the average aluminum usage in cars in developed countries reaches 145 kg, while in China, it is only 105 kg, indicating huge market potential. Research shows that global demand for automotive aluminum sheets is expected to increase significantly over the next 10 years, with an annual growth rate of 30%. In China, transportation sectors such as passenger cars, all-aluminum trailers, and high-speed rail could add 10 million tons of aluminum market capacity in the future. Projects like “large aircraft” and cruise ships also present greater development opportunities for the aluminum industry.

Wen Xianjun stated that the potential for consumption growth in traditional fields is enormous, and coupled with emerging applications, it will drive continuous improvement in the quantity and quality of aluminum consumption in China. He predicts that primary aluminum consumption will grow by 7.2% this year. By the end of the “13th Five-Year Plan” period, China’s aluminum consumption will peak at 44 million tons per year and will remain at this level for a long time.

Relevant officials of the China Nonferrous Metals Industry Association emphasized that it is necessary to further unify understanding and strengthen policy support and guidance. With a push from policies, “small investments can achieve significant results,” not only helping the electrolytic aluminum industry overcome difficulties faster but also simultaneously achieving the triple goals of stabilizing growth, adjusting structure, and promoting green development.