Selection Of Development Path Of Chinese Aluminum Fabrication Industry In The Context Of Trade Friction

From 2017 when the US initiated the hearing and investigation against the aluminum products exported from China till the frequent hearing and investigation of other few countries, aluminum fabrication has become the segment subject to immediate influence of trade disputes in the Chinese nonferrous industry. Undeniably, the long-term repeated interference through tariffs has brought negative effect on the aluminum fabrication industry in China.

Based on the data jointly published by China Nonferrous Metals Fabrication Industry Association (CNFA) and Beijing Antaike Information Co., Ltd. (ATK), the total production of aluminum products in China reached 39.7 million tons in 2018, up by 3.9% on a year-on-year basis. After the deletion of the repeated statistics of 4.43 million tons of raw aluminum foils in aluminum sheets, the actual production of aluminum products in China was 35.27 million tons in 2018, with the growth substantially down by 4.6 percentage points on a year-on-year basis, marking the entry of slow development stage in contrast to the continuous rapid development since the beginning of the 21st century.

In addition to the obvious external influence, the industry has insufficient internal development momentum, which should be highlighted and addressed urgently. Based on the data published by National Bureau of Statistics of China (NBS) and CNFA, the aluminum fabrication industry realized a main business income of RMB 893.1 billion in 2018, up by 3.8% on a year-on-year basis; achieved a profit of RMB 25.4 billion, sharply down by 31.5% on a year-on-year basis; and realized an average sales margin of 2.84%, sharply down by 1.8 percentage points on a year-on-year basis. As the aluminum fabrication industry mainly adopts the profit model of relatively fixed fabrication fees, the benefits are less subject to the influence of aluminum price fluctuation. However, the consecutive sharp decline in average sales margin in recent two years has reflected the severe excess capacity and homogeneous competition to some extent.

Overall, the difficulties encountered by the Chinese aluminum fabrication industry can't be underestimated, but the confidence should be unshakable and efforts should be enhanced, as tfhe industry remains in the period of important strategic opportunities.

1. Foundation and advantages of industry development remain

The layout of the Chinese aluminum fabrication industry is relatively concentrated. Based on the data published by NBS and CNFA, the top 10 provinces/municipalities/autonomous regions in terms of production of aluminum products in China in 2018 are Henan, Shandong, Guangdong, Jiangsu, Chongqing, Zhejiang, Guangxi, Inner Mongolia, Xinjiang and Fujian, which contribute to 76.4% of the total national production. Specifically, a batch of aluminum fabrication industry clusters with various sizes and characteristics have been established in Nanhai in Guangdong, Gongyi in Henan, Binzhou in Shandong, Linqu in Shandong, Longkou in Shandong, Daye in Hubei, Dashiqiao in Liaoning, Suixi in Anhui, Baise in Guangxi and Jiangxi-Zhejiang-Shanghai region.

Technological innovation capacity has been enhanced. The industry now boasts 19 national competence centers, 17 of which belong to aluminum fabrication enterprises. State-owned and private aluminum fabrication leaders as Chinalco, Nanshan Aluminum, Liaoning Zhongwang, Guangdong Xingfa and Guangdong Fenglu have all established their own research institutes. Various innovation platforms as industrial technology innovation alliances, academician workstations, post-doctoral research stations and nationally recognized testing laboratories became more popular. The aluminum product standards adapted to the industry development needs, aligned with international standards, and have been recognized and adopted by multiple countries worldwide. By 2018, the total number of patent applications in the aluminum fabrication industry reached 31,023, with 12,928 granted patents. Projects as “extrusion forming and application technology of high-performance, large-sized and complex aluminum alloy sections”, “development and application of tension equipment for 12,000-ton aviation aluminum alloy plate” and “high-performance aluminum alloy overhead conductor material and application” won the national scientific and technological progress second prize in recent years, and several research results won science and technology awards of the Chinese non-ferrous metals industry. Moreover, the production of high-end cast ingots and precision profiles, aluminum alloy products with high strength and ductility, aluminum foils for power lithium ion battery, aviation mid-thick plates, autobody panels, aluminum alloy oil drill pipes and other products with high technical content and high added value achieved continuous progress.

The aluminum fabrication industry is featured by full industry chain, complete product varieties and reasonable structure. So far, China has established a full industry chain covering aluminum and aluminum alloy smelting and casting, mould design and manufacturing, aluminum and aluminum alloy extrusion, rolling, forging, aluminum product surface treatment, and further processing. The equipment and auxiliary industries supporting aluminum fabrication have realized significant development. Aluminum products with various forms, grades, dimensions and states, including plates, strips, foils, pipes, bars, profiles, wires, powder and forged pieces, have realized independent manufacturing, featuring high capacity and most complete varieties worldwide. In terms of industry structure, aluminum extrusions occupy the biggest share, followed by sheets and foils, which is adapted to China’s national conditions, different from those of western countries as the US and Japan, and reasonable.

The technology and equipment capacities are comparable to foreign peers. The manufacturing technologies of extensive products as aluminum profiles, aluminum sheets and aluminum foils are increasingly mature, the manufacturing efficiency and product quality are continuously improved, and various products are entering international market gradually. Cutting-edge aluminum fabrication technologies are under development, involving aviation mid-thick plates, autobody panels, high-end cast ingots and precision profiles, aluminum alloy products with high strength and ductility, aluminum foils for power lithium ion battery, aluminum alloy oil drill pipes and other products. World-leading aluminum fabrication equipment have been imported, ranking the top in terms of quantity and varieties worldwide, and home-made aluminum fabrication equipment have realized significant development, greatly narrowing the gap with world-leading aluminum fabrication equipment.

2. The external risk tolerance and international status have been strengthened

The aluminum products are mainly consumed in China, with nearly 90% of the total production of aluminum products consumed by various industries (with the repeated statistics of aluminum foil blanks deleted), providing strong home market support for the steady development of the Chinese aluminum fabrication industry.

China now can independently manufacture key equipment and ancillary equipment for aluminum fabrication, fully masters the manufacturing technologies for various aluminum products, and forms a complete industry chain.

In terms of production share, the production of aluminum products in China in 2018 occupied over half of the total production worldwide, at 55%; in terms of export of aluminum products, the export volume has increased from 0.13 million tons in 2000 to 5.21 million tons in 2018, with a global share of about 20% and over 200 export destinations; in terms of leading enterprises, China has boasted not only several comprehensive aluminum fabrication leading enterprises with about 1 million t/a capacities represented by Chinalco, Nanshan Aluminum and Liaoning Zhongwang, but also leading enterprises with certain international influence in various segments; specifically, in 2018, the production of aluminum sheets of Mingtai Aluminum reached 0,77 million tons, ranking the top worldwide, the production of aluminum foils of Dingsheng Aluminum reached 0.5 million tons, ranking the first place worldwide, the production of aluminum extrusions of Liaoning Zhongwang reached 0.6 million tons, ranking the first in Asia and the second worldwide, the production of construction aluminum profiles of both Guangdong Xingfa and Fenglu Aluminum exceeded reached 0.5 million tons, ranking the top worldwide, and the production of aluminum cans of Nanshan Aluminum reached about 0.5 million tons, ranking the third worldwide.

3. The trade war has a limited and non-ignorable effect

Despite of the increasingly aggravated trade protectionism, the export of aluminum products of China realized significant growth in 2018, with a total export volume of 5.21 million tons, up by 22.8% on a year-on-year basis. Specifically, the export volume of aluminum extrusions reached 0.97 million tons, with a share of 18.6% and up by 16.4% on a year-on-year basis; the export volume of aluminum sheets reached 2.79 million tons, with a share of 53.7% and up by 34.6% on a year-on-year basis; and the export volume of aluminum foils reached 1.29 million tons, with a share of 24.7% and up by 10.6% on a year-on-year basis. In 2019, the export of aluminum products maintains the growth momentum, with the total export volume of the first four months reaching 1.71 million tons, up by 11.2% on a year-on-year basis, despite of a year-on-year decrease of 52.39% for export to the US. In 2018, the export volume of aluminum products to the US totaled 0.34 million tons (consisting of aluminum profiles of below 0.01 million tons, aluminum sheets of 0.247 million tons and aluminum foils of 0.073 million tons), occupying 6.5% of the total export volume and 0.86% of the total production of China in 2018 - limited direct effect on the aluminum fabrication industry.

Despite of limited direct effect, the trade war has a negative effect on the prediction on and confidence for the economy in the future. Amidst the accelerated global economic integration and regulation of cyclical contradiction, trade frictions will exist for a long time. In 2018, in addition to the US, the EU, Argentina, India, Canada, Mexico and other countries initiated investigations on some aluminum products exported from China. In 2019, Vietnam, Canada and Turkey and other countries have registered and investigated 7 cases involving aluminum products exported from China. Therefore, we should be prepared for risks. In the context of global economic downturn and increased risk of domestic economic downturn, we should not only adhere to the core task of supply-side structural reform to earnestly solve the deep-rooted structural imbalance, but also take flexible countercyclical policy measures to actively expand the domestic effective demand for aluminum products and stabilize the industry development.

4. Selection of development path of Chinese aluminum fabrication industry in the future

Despite of the rapid development and transformation from big size to strong capacity, the Chinese aluminum fabrication industry still faces some deficiencies and problems. However, the Chinese economy remains in the period of important strategic opportunities, which provides strong support for the continuous growth of the domestic aluminum consumption in the coming years. Based on our researches, the primary aluminum consumption in China is expected to reach plateau around 2025, and is still expected to maintain a growth rate of 5%-8% before 2025. As aluminum products are featured by multiple benefits as light weight, attractive color, good processability, affordable price and recyclability, they should and will play a more important role in meeting the public’s demand for a better life.

Path 1: To transform from focus on scale and speed to green manufacturing and intelligent manufacturing. Based on the industry data in recent two years, the profit decline and profitability slump are realistic problems, which gives an alarm to the production mode focusing only on quantity. Therefore, the quantity control and quality improvement will be an inevitable choice for the aluminum fabrication industry to implement the five development ideas. With the increasingly stringent environmental standards on pollutant emissions, supervision and enforcement efforts in China, the aluminum industry is facing rising environmental costs and prominent solid waste and hazardous waste problems, making the transformation to green manufacturing and intelligent manufacturing an inevitable choice. Specifically, we should develop advanced energy saving, emission reduction and consumption reduction technologies, improve treatment of the three wastes and recycling of industrial solid waste, popularize the green energy, manufacture green products, build green plants, form green industrial parks and industry chain, and explore a manufacturing mode integrating automatic production line and information technology.

Path 2: To accelerate transformation and upgrading, extend to further processing, realize technical transformation and equipment upgrading, adjust product structure, develop new products, and meet the requirements of various users for mid- and high-end products. The aluminum consumption per capita in western developed countries has plateaued, and the aluminum consumption per capita in Japan and the US has started the decline since the peaks in 1997 and 1999 respectively. In this sense, the consumption ceiling in China will soon be reached, with the increasingly saturated traditional market and infant emerging market. In this context, large-scale expansion of aluminum fabrication capacity is not advisable, and we should focus on mergers and acquisitions, implement transformation and upgrading, adjust product structure, adapt to market changes, seek specialized development, incubate high-tech start-ups, highlight distinction, build brand, adhere to supply-side structural reform, improve supply quality, and expand high-end supply and effective supply to meet the public’s demand for a better life.

Path 3: To strengthen innovation capability. We should strengthen fundamental research and application development, pay attention to patents, standards and technological achievements, track cutting-edge technologies, promote the “going global” of Chinese technologies, Chinese equipment, Chinese products and Chinese standards, enhance management innovation and realize lean management.

Path 4: To go global. Going global means not only overseas expansion and development but also industry chain collaboration. We should strengthen the collaboration with upstream and downstream players, seek cooperation with upstream electrolytic aluminum manufacturing sites, optimize production layout, guarantee the supply of electrolytic aluminum, and amplify cost and competitive advantages; establish plants in regions close to consumption, in order to improve response to market changes, adapt to market and guide market demand, and continue expanding export. Competitive enterprises should improve their global layout, acquire or participate in shares of world-leading aluminum fabrication and application enterprises, play a role in global aluminum fabrication value chain, improve international competitiveness, and establish plants in densely populated countries and regions with certain consumption potential, which can not only develop new markets but also mitigate the negative effect of trade protectionism.

Path 5: To combine industry and finance. Competent enterprises should actively seek IPO, so as to take advantage of capital market to realize enterprise appreciation, wealth appreciation, assets appreciation and brand appreciation. Listed companies should intensity their efforts to acquire direct financing in capital market. We should give full play to the characteristics of aluminum with both commodity attribute and financial attribute, regard aluminum products as the carrier for the combination of industrial capital and financial capital, in order to promote the integration of industry and capital. Moreover, we should take advantage of futures instrument for hedging, prevent financial risks and market risks, in order to realize the steady development of enterprises.

As trade friction will exist for a long time, the Chinese aluminum fabrication industry should be aware that only high-quality development can help us resisting the global economic fluctuation.