Henan’s 80% Aluminum Enterprises Remains in the Red

Between January and August this year, Luoyang allocated RMB 47 million to support difficult industries of Aluminumand silicon PV, etc.

In fact, since the beginning of this year, affected by the global economic situation, plus electric power price hike, increased cost and demand deficiency, etc., Henan’s aluminum production environment worsened month by month. The aluminum smelting sector got in the red in an all-around manner, and profit of the aluminum processing industry dropped significantly.

According to public data, between January and July this year, Henan’s Aluminumoutput stood at 2,155,900 ton, down 3.30% y-o-y; of which the output in July was 306,000 ton, 32,200 ton higher than that of the previous year.

Wang Shangyou, the chief accountant of Wanji Holding Group Co., Ltd. (hereinafter referred to as Wanji Holding), told the reporter that Aluminumenterprises are large and influential local enterprises. It is a good thing to receive governmental subsidy, though it can only help Wanji Holding tide over the present difficulties due to its poor market influence.

“Not only in Henan, the Aluminumindustry all over China remains in depression. In order to get rid of the difficulties as soon as possible,Henan must carry out coal-electricityaluminum integration, extend the industrial chain and strengthen aluminum deep processing.” Liu Libin, Vice President of Henan Nonferrous Metals Association, said so.

Nowadays, 80% of Aluminumenterprises in Henan remain in the red, and most enterprises using on-grid electricity come to a halt, with a loss of 500,000 ton according to rough estimates.

In fact, the Aluminumindustry suffers from heavy losses mainly due to electric power price hike and growth slowdown of market demand.

Since the 4th quarter last year, the nonferrous metals industry has been faced with a grim external environment, and the production and operation difficulties of nonferrous metal enterprises go up. Especially, the on-grid electricity price increased by RMB 0.21/KWH in total during the past 2 years. The full operation cost of Aluminumis RMB 16,300-16,500/ton. Henan’s electric power price is the highest in China and exceeds RMB 0.6/KWH, and the full cost of Aluminumis up to RMB 18,600-18,900/ton. However, the selling price of Aluminumis approximately RMB 15,400, so it is inevitably to get in losses.

Jia Dongyan, Board Secretary of Jiaozuo Wanfang Aluminum, indicated that, now the electric power cost accounts over 50% of the total cost of electrolytic aluminum, and becomes a key factor determining competitiveness of Aluminummanufacturers. Take Jiaozuo Wanfang Aluminum for example, it takes approximately 14,000 KWH to manufacture a ton of electrolytic aluminum. Therefore, electric power price reduction by RMB 0.01 can lower the cost per ton of Aluminumby over RMB 140. The company uses about 6 billion KWH to manufacture Aluminumannually, thus electric power price reduction by RMB 0.01 can lower the total cost by RMB 60 million.

In addition, the price of alumina, which is the raw material for electrolytic aluminum, has been remaining high. This is also a reason for losses of the Aluminum sector. It was RMB 2,700/ton in June and RMB 2,600/ton in late August, seeing almost no decline.

In the face of the difficulties of the Aluminumindustry, the CPC party committee and provincial government of Henan put forward clear deployment requirements concerning strategic restructuring of the aluminum industry of Henan, and departments concerned are also gearing up to enhance investigations, study policies and relevant measures and facilitate the aluminum industry to get rid of poverty as soon as possible.

As a traditionally-advantageous industry of Henan, the aluminum industry has formed a relatively complete and mature industrial chain and boasts high-quality stock assets. Liu Libin is of the opinion that the government must support Aluminumas a pillar industry of Henan.

Li Hongwei, the Board Secretary of Shenhuo Group, indicated that the critical point for the government is reducing electric power price,otherwise, the Aluminummarket will shrink and even die out. The government shall promote infrastructure of self-provided power supply, improve self-provided power supply capability and reduce service expenses of selfprovided power facilities.

Nowadays, Henan’s on-grid power tariff is approximately RMB 0.6/KWH, while the electric power cost of self-provided power facilities ranges from RMB 0.4/KWH to RMB 0.5/KWH. It takes approximately 14,000 KWH to manufacture a ton of electrolytic aluminum,that is, an increase of RMB 0.10 of electric power price can cause cost increase of nearly RMB 1,400/ton.

An insider told the reporter that enterprises with more complete industrial chain have higher profitability. Aluminumenterprises shall also improve the industrial chain. The traditional“coal-electricity-aluminum” industrial chain plus alumina and deep processing represents a complete industrial chain.

“Henan must carry out coal-electricityaluminum integration, extend backwards to the industrial chain and strengthen aluminum deep processing.” Liu Libin said.

In fact, coal-electricity-aluminum integration has become a must for competition within the Aluminumindustry. To expand business, enterprises must seize the commanding point of resources and minimize the cost.

Li said, in the face of difficulties, the Aluminumindustry shall also advance industrial transfer, seek for appropriate opportunities to transfer westwards, thus fully utilizing the resource advantages of western China to reduce cost and increase profit.