Both the output and sales volumes within China’s aluminium extrusion industry have been rising rapidly in lock step with the country’s rising infrastructure investments and accelerating pace of industrialisation in recent years. , Today China is the world’s largest manufacturer and consumer of aluminium extrusion products. After 10 years of dynamic growth, China’s aluminium extrusion industry is now entering a new era marked by a host of novel developmental trends.
Impressive Growth Prospects From Wider Applications of Industrial Aluminium Extrusion Products
In 2009, there were totally 2,200 enterprises in approximately 95 countries and regions worldwide capable of producing aluminium extrusion products. China topped the list as the largest producing country accounting for 50% of the world’s total production capacity.
Driven by economic growth and expanding product applications, global consumption of aluminium extrusion products surged from 8,960 kilotons in 2001 to 15,500 kilotons in 2009, representing a CAGR of 7.5%. This figure is projected to rise to 16,690 kilotons in 2012.
The industry’s landscape showed variable growth patterns in different regions from 2001 to 2009. While consumption in China as a percentage of the world’s total continued to climb, declining trends were seen in Europe and North America. In 2009, China accounted for 47% of the world’s consumption total versus 21%, 8% and 6% in Europe, North America and Japan respectively. China is now the world’s largest consumer of aluminium extrusion products.
At present approximately 30% of the aluminium extrusion products in China are for industrial use. They are widely applied in transportation (including the production of automobiles and railways), equipment and machinery manufacturing as well as in the durable consumer product sectors (including light industry). These categories accounted for 10%, 10% and 12% respectively of China’s total consumption of aluminium extrusion products. Compared with Europe, North America and Japan where industrial usage of aluminium extrusion products rose to as high as 60%, 55% and 40% respectively, China still lags behind in terms of production, product development and application of industrial aluminium extrusion products. The implications of this point to immense potential for future growth and profitability.
Consumption of industrial aluminium extrusion products is expected to see continued growth over the next 5 to 10 years with the proportion as a percentage of total aluminium extrusion products projected to rise from 30% at present to 45% to 50% by 2015. It is expected to further increase to 70% over the next 10 years, according to strategic planning carried out by the Chinese government.
More importantly, developing the industrial aluminium extrusion business will enable enterprises to reap economic benefits and at the same time raise their social awareness and corporate responsibilities. Today because the production and sales costs of construction aluminium extrusion profiles are relatively transparent, the products themselves have limited added-value and consequently lower margins. By switching to industrial aluminium extrusion products, enterprises will be able to lift their profit margins by at least 20% to 30%. In addition, the low-carbon emissions and environmentally friendly characteristics during the aluminium extrusion production processes are in complete harmony with the country’s stated mission of promoting light-weight product development to help save energy and reduce harmful emissions.
An Industry Supported by National Policies
Consumption of industrial aluminium extrusion products is expected to surge over the next few years with mid-to-high-end products taking centre stage. Currently in the midst of rapid industrialisation, China will soon emerge to become a mid-level developed country and ultimately realise its goal of being a truly developed country in 20 to 30 years’ time. Aluminium extrusion products, which have enormous potential for industrial applications, will play a key role in this economic transformative process. Among the country’s existing 124 industrial sectors, 113 (or 93%) use aluminium products.
To counter the present low usage of industrial aluminium products in China, relevant government departments have issued guidelines on the consumption structure of aluminium extrusion profiles. In the “Notice on Guiding Opinions for Accelerating Aluminium Industrial Restructuring” released by the National Development and Reform Commission and nine ministries and commissions, including the Ministry of Finance, one of the objectives of the structural adjustment of the aluminium industry is to increase the proportion of high value-added processed products to achieve a 70/30 ratio between industrial aluminium extrusion profiles and construction aluminium extrusion profiles.
Light-weight development within the transportation industry coupled with the development of electric power engineering and machinery equipment industries have spurred broader applications of aluminium extrusion products across China. Today there are rising demands for medium and high strength industrial aluminium extrusion profiles as well as tube and bar products. Over the next few years, the proportion of industrial aluminium extrusion profiles in aluminium extrusion products is expected to increase from approximately 30% at present to around 45% and 50% in 2015, gradually becoming the dominant product category on the market.
Due to the light-weight, low-price and recyclable characteristics of aluminium products, aluminium extrusion profiles will reap tremendous market opportunities in the transportation, home appliances, electronics and machinery equipment sectors given the country’s current emphasis on energy savings and environmental protection.
Citing the automobile sector as an example, experts estimate that a 10% decrease in the weight of an automobile can reduce fuel consumption by 6% to 8%, and using aluminium is undoubtedly the best way to reduce the weight of an automobile. According to a research study conducted by Alcoa based on a sampling size of 500,000 buses, if aluminium were used to replace steel, thereby reducing the mass of every bus by 1 ton each, approximately 2.4 billion litres of fuel would be saved while greenhouse gas emissions would also be dramatically reduced. In fact, the global average application of aluminium in automobiles has increased from 50 kilograms per unit at the beginning of 1980 to 107 kilograms per unit today, representing a growth of 114%. According to the European Aluminium Association, aluminium use in automobiles across Europe is expected to reach 200 kilograms per unit in 2015.
In addition, the country’s new energy and environmental protection industry is growing rapidly at an annual growth rate of over 20%. Among the stellar clean power technologies being developed are in the solar energy and LED industries which show the most impressive growth. Aluminium extrusion profiles have been widely used in these industries, thanks to their high conductivity and light-weight characteristics.
Technological Innovation - The Latest Trend
In recent years, China has announced a number of adjustment policies to address key issues related to the aluminium alloy extrusion industry, including smaller operating scales of enterprises, fragmented markets, and duplicated development. A new regulation known as “Aluminium Industry Entry Requirements” promulgated in October 2007 sets out entry requirements for new aluminium processing projects and specified energy consumption as well as designated metal consumption indicators to help strengthen environmental protection and raise barriers to entry. This heightened entry barrier imposes controls on the scale of investments and regulates the market in an orderly way to ensure that product quality meets world standards and to create a favourable environment for enterprises that adopt energy-saving means to manufacture their products in a profitable way.
The aluminium processing industry is also witnessing gradual changes in terms of moving away from unregulated low value-added products as the Chinese government implements policies to adjust the industry’s structure while the demand for high quality products increases. As a result, the industry is widely expected to undergo a major consolidation. Enterprises with products targeted at the mid- to low-end market segment made with out-dated manufacturing technology and equipment will face severe pressure in terms of market competition, capital resources, costs, energy consumption, technical know-how and other factors. At the same time, highly competitive market- driven enterprises that incorporate advanced technologies, offer high quality products and have good management systems in place will capture an increased share of the overall market.
The accelerating pace of industry consolidation along with an increasing number of mergers and acquisitions will also serve as a catalyst for enterprises in the industry to seek rapid expansion, increase their operating scales, enhance their professional skills and strengthen brand development. To this end, integrated competency in product research and development, quality management as well as professional sales and customer services are the keys to successful expansion.
Zhongwang Emerges as a Model
Zhongwang has emerged as an ideal case study for the Chinese manufacturing industry vis a vis the current industrial structure transformation. In 2002, Zhongwang identified the industry trends and began a change in its strategic business operations. In 2005, while manufacturers in the aluminium extrusion profile industry still produced construction aluminium extrusion profiles using extrusion presses rated under 16MN, Zhongwang ordered the world’s largest 125MN aluminium alloy dual action extrusion press, creating the world’s first mega production line for industrial aluminium extrusion profiles. This prudent decision laid a solid equipment and technical foundation for Zhongwang to enter the industrial aluminium extrusion industry.
As at the end of 2010, Zhongwang operated 73 world-class aluminium extrusion production lines. Gross profits from industrial aluminium extrusion products accounted for 99.6% of the company’s total gross profit and increased the company’s overall gross profit margin to a record high of 40.6%. Zhongwang even surpassed Hydro and Alcoa to become the world’s second largest industrial aluminium extrusion manufacturer after Sapa.
The booming industrial aluminium extrusion profile industry has caught the attention of many Chinese aluminium extrusion profile manufacturers who wish to enter this lucrative market. However, to be competitive requires more than just advanced equipment and a strong R & D team to gain market share. A sound organisational structure and strategic planning are also crucial. Every step of production, from research and development, smelting and casting to die design and extrusion, which comprise just some of the key processes involved, could be challenged by other players in many ways. That’s why Zhongwang ensures that every division works seamlessly together to ensure excellence at every step of production. This has been the secret to keeping the company at the forefront of the industrial aluminium extrusion industry.
Leveraging its strong foothold in the industrial aluminium extrusion industry, Zhongwang is now setting its sights on aluminium flat rolled products like aluminium plates, which are applied primarily in sectors that include aviation and aerospace, vessels and railway transportation, and other industries. These new products are expected to meet the enormous demands bought about by high-speed rail and aircraft manufacturers in China, and will set the stage for Zhongwang’s profitable growth in the future.