Source: 21st Century Business Herald (by Deng Yao)
Following the anti-dumping and countervailing duties investigations on certain Chinese exports of aluminium extrusion products to the U.S. initiated by the U.S. government last year, China Zhongwang Holdings Limited (“China Zhongwang”), the nation’s largest developer and manufacturer of industrial aluminium products, adjusted its corporate strategy to sharpen its competitive edge.
Mr. LU Changqing, Executive Director and Vice President of China Zhongwang, said in an interview on 18 March 2011 that the company’s net profit for 2010 reached approximately RMB2.6 billion, despite a 26.43% year-on-year decline which was mainly due to the U.S. anti-dumping and countervailing duties investigations.
Lu said China Zhongwang will adjust its export strategy on two fronts. On the one hand, the company will strengthen its efforts in developing the domestic PRC market and strive to increase its proportion to 60% of the company’s total revenue. On the other hand, it will step up its market development efforts in other countries and regions, such as Australia, Europe and Canada.
Another major move of China Zhongwang is to develop high value-added aluminium flat rolled products, mainly consisting of medium-to-high thickness plates, high-end foils and sheets. Production is expected to commence in two to three years.
Business Hindered by the U.S. Anti-Dumping and Countervailing Duties Investigations
China Zhongwang is the third largest industrial aluminium extrusion product developer and manufacturer in the world and the biggest one in Asia and China by production capacity in 2009. As at the end of 2010, China Zhongwang’s production capacity reached 640 kilotons.
China Zhongwang announced in its 2010 annual results on 10 March 2011. The revenue and profit attributable to shareholders were RMB10.5 billion and RMB2.6 billion respectively, representing decreases of 24.0% and 26.4% compared to 2009.
Lu said China Zhongwang’s exports to the U.S. have been affected since the U.S. initiated anti-dumping and countervailing duties investigations in last April.
The U.S. is said to be the largest export market of China Zhongwang. It accounted for over 40% of the company’s total revenue prior to the U.S. anti-dumping and countervailing duties investigations.
Lu said the final anti-dumping and countervailing duties determinations by the U.S. are expected to be released in the first half of this year. China Zhongwang will further adjust its portfolio of export products in response to the final determinations. Exports to the U.S. is expected to decrease further this year.
A person-in-charge of a PRC aluminium product manufacturer moaned about the negative impact brought forth by the U.S. anti-dumping and countervailing investigations. “We can only be a victim,” he commented.
The same person-in-charge commented that, due to the relatively weak bargaining power of Chinese departments and industry associations which are responsible for responding to the anti-dumping and countervailing investigations, Chinese aluminium product enterprises stand little chance to win even if they respond to the investigations.
Expand into Other Overseas Markets
To counter the negative impact of the U.S. anti-dumping and countervailing duties investigations, China Zhongwang is seeking to diversify its customer base.
China Zhongwang revealed that China will be its core market. It will further increase its market share in the domestic sectors of transportation, machinery equipment and electric power engineering. This will be supplemented by other high value-added products to be launched for the overseas export markets.
Lu said that the company’s management holds a fair view to the investigations. Although it brings temporary challenge to the company and it takes time to adjust the marketing strategy, the investigations serve as a catalyst to the company by accelerating its pace to build a diversified revenue base in terms of geographical distribution.
“Inevitably, risks emerge if a company derives a high percentage of sales from one single customer or market. The U.S. market which contributed a rather high percentage of sales to the company in 2009 might be a risk to the company’s development,” said Lu.
China Zhongwang Increased Sales to PRC Market since 2H 2010
Lu believed that China, as the world’s largest market of industrial aluminium extrusion products, has rising demand for high-end industrial aluminium extrusion products, offering immense potential for development.
In addition, China Zhongwang will further develop other overseas markets such as Canada, Australia, and Europe to develop a broad revenue base geographically.
Lu reaffirmed that China Zhongwang will not give up the US market. The company will continue to seek export opportunities for its high value-added products, as the current anti-dumping and countervailing duties investigations affect mainly mid-to-low-end products.
In 2010, sales from the domestic market accounted for 55% of the company’s total sales. Lu expected sales from the domestic market as a percentage of total revenue to further increase to over 60% in 2011, and further up to 70% and 80% afterwards. Geographically, China will be the Group’s core market complemented by overseas markets.
Capacity Expansion without Merger and Acquisitions
A major development in the company’s capacity expansion roadmap this year is the production of high-end aluminium flat rolled products. Prior to that, 99.6% of the company’s gross profit came from industrial aluminium extrusion products. The company has almost withdrawn from the construction aluminium extrusion product market.
Liu Zhongtian, Chairman of China Zhongwang, expressed that entry into the new business of aluminium flat rolled products will not only enable the company to further capitalize on its leading edge in aluminium alloy smelting and casting and product research, but will also help foster profit growth engines with synergies created through the sharing of customer base and market resources in related downstream application sectors with its existing products and markets.
In addition to developing high-end aluminium flat rolled products, Lu said that the company will strengthen research and development capabilities, so as to expand its product offering to include different types of processed aluminium products in finished or semi-finished form.
Lu said that China Zhongwang’s current annual investment in product research and die development is approximately RMB300 million.
China Zhongwang will neither expand its production capacity through merges and acquisitions in the short term, nor extend its business to upstream areas such as electrolytic aluminium.
“It is hard to find acquisition targets as our company focuses on high value-added products, and there is a very limited numbers of domestic companies which produce similar grade of products as ours.” said Lu.
As for the possibility in acquiring upstream electrolytic aluminium enterprises, Lu said the company does not have any plan for now.
