Source: China Nonferrous Metals News Website (www.cnmn.com.cn)
After more than five decades of development, China has become a major producer, consumer and exporter of aluminum extrusion products in the world and has made notable contributions to global economic developments. What changes will the nation’s 12th Five-year Plan bring to the aluminium extrusion industry? China Nonferrous Metals News talks to Mr. Wang Dengwen (“Wang"), general research director of Sunlight Metal Consulting (Beijing) Co. Ltd. (“Sunlight”) to find out more about the development directions for China’s aluminium extrusion industry.
Reporter: The aluminum extrusion industry acts as an important pillar in China's aluminum processing industry as a whole, not only in a sense that it had an early start and experienced rapid development since then, but also because it has emerged quickly to rank China as one of the world’s largest aluminium producing countries. What are the key attributes to that?
Wang: In the global context, China's aluminum extrusion industry has progressed by leaps and bounds in recent years. According to data released in the “Statistics on the Nonferrous Metals Industry”, the annual production capacity and output of the nation’s aluminum extrusion products (referring to aluminium extrusion profiles, pipes and rods here) grew from 2.108 million tons and 1.822 million tons respectively in 2002 to 9.29 million tons and 8.662 million tons respectively in 2009. The compound annual growth rates of capacity and output over a period of seven years from 2002-2009 were 23.6% and 24.9% respectively. This was unprecedented and unmatched by any other country during the same period.
Supporting the robust growth were large-scale infrastructure development in China and strong export growth. Domestically within mainland China, rapid infrastructure development was the key factor that drove the demand for aluminum extrusion products. As for export markets, China’s rich aluminum raw material resources coupled with its low production cost advantage gave it an edge in the international arena. According to “Statistics on the Nonferrous Metals Industry”, exports of aluminum extrusion products (mainly referring to aluminum bars, extrusion profiles and pipes) surged from 11 tons in 2002 to 53.5 million tons in 2009, representing a compound annual growth rate of 25.4%.
Reporter: What would it take for China’s aluminum extrusion industry to achieve sustainable development? What characteristics will emerge in the industry?
Wang: Without a doubt, China’s aluminum extrusion industry will continue to deliver sustainable growth under the 12th 5-year Plan, but its development are tied to and will be impacted by different factors both at home and abroad. As the 12th Five-year plan places far greater emphasis on internal markets and domestic demand than ever before, and accords high priorities to adjusting industrial structures that emphasize added value, the development direction of the aluminium extrusion industry has to be in sync with the nation’s macro planning.
China's aluminum extrusion industry will show a number of characteristics under the 12th Five-year Plan:
Firstly, there will be a notable change in product mix as reflected in the adjustments between construction and industrial aluminium extrusion products. The promulgation of energy saving policies will place a cap on the demand for ordinary construction aluminum extrusion products as they will be replaced by new aluminium extrusion products with heat insulation and energy saving functions.
The adjustment between construction and industrial aluminum extrusion products is inevitable. While the state will continue to develop the Western China region and accelerate the pace of urbanization, the volume growth is flattening compared to previous years. From this perspective, supply of construction aluminium extrusion products well exceeds market demand.
At present, more than 70% of the new aluminum extrusion projects under construction are designed for the manufacture of industrial aluminium extrusion products. Of the new projects funded by listed companies raising proceeds in the capital market, close to 100% were industrial aluminium extrusion projects. These are just some examples that reflect market adjustments.
Secondly, changes will also be seen in terms of the mode of operation. Producers of aluminum extrusion products will shift away from seeking sheer volume growth to turn to enhancing the intrinsic value of their products. Many CEOs of aluminium producers I have met complained about the brutal competition in the market, declining gross profit margins and subsequently narrowing net profit margins. Their low profitability is simply the result of the mass products they manufacture which are in abundant oversupply. As such, certain aluminium extrusion product manufacturers will expand their product offering to include deep-processed aluminium products, while an increasing number of small and medium enterprises will engage in the deep processing of aluminum products.
Reporter: Which segment of the aluminium extrusion market in China offers more potential for development in the 12th Five-year Plan era?
Wang: Transportation vehicle manufacturing, new renewable energy industry such as solar, wind and nuclear power, and electricity grid construction are some of the high potential sectors that offer immense opportunities to aluminum extrusion manufacturers.
Reporter: We have seen unprecedented investments in China's large-scale, heavy-duty aluminum extrusion machineries. Will this continue in the 12th Five-year Plan era?
Wang: These large-scale or heavy-duty aluminum extrusion presses are designed for the manufacture of large-section aluminum extrusion products. Manufacturers who have purchased these machineries hold a positive view towards the rising demand from the transportation sector. At present, applications of large-section aluminum extrusion products in China are still limited. They are mainly used in underground and high-speed railway development. The annual procurement of aluminium extrusion products for these purposes is estimated to be not exceeding 100,000 tons per year and is expected to be relatively steady in the coming years. According to research data compiled by Sunlight, there are over 52 sets of large-scale extrusion presses in operation or under construction in China as of the end of 2010. This accounted for 51% of the world’s total number of large-scale presses. China’s share in the number of the large-scale oil-driven presses went even as high as 61%. Only a handful of companies will be building large-scale or heavy-duty aluminum extrusion press in the next five years.
(Editor's note: Zhongwang ordered the world's largest 125MN oil-driven extrusion press in 2003 to build China's first mega industrial aluminum extrusion production line. Today, this 125MN extrusion press is still the world’s largest. In the domestic market, Zhongwang operates the largest number of large-scale extrusion presses, amongst these are four sets of 75MN presses. Zhongwang is still in the midst of increasing its investments in large-section machineries and enhancing its product development capabilities. It will add another 18 sets of large-scale presses of 75MN or above between now and 2013.
Reporter: Export sales have been a key driving force of China’s aluminum extrusion industry. What is the outlook of the export market under the 12th 5-year Plan?
Wang: There are uncertainties as to the development of export markets over the next five years for a number of reasons such as the adjustment of domestic export trade policy, the pace of economic recovery in overseas markets, foreign trade protection and the number of anti-dumping cases. As far as the export trade policy is concerned, the Chinese government has already cancelled the export tax rebate for all nonferrous metals except aluminium. It would be sooner or later for the government to adjust the rate of tax rebate for aluminium extrusion products. From an international perspective, as the aftermath of the financial crisis in 2008 still lingers in certain countries, there will surely be more anti-dumping cases to come. For these reasons, the export outlook of China’s aluminium extrusion products is far from optimistic. Nevertheless, China’s aluminium extrusion industry has attained the primary requirements required for exports with respect to equipment set up as well as scale of operation. By upgrading product quality and expanding export sales channels, China will maintain steadfast development in developing the export markets for aluminum extrusion products.
