China Hongqiao Adding Aluminum Output as Global Smelters Cut
China Hongqiao Group Ltd. (1378), the nation’s largest non-state aluminum producer, and competitors are boosting or maintaining output as the government seeks to trim capacity amid a global glut.
China Hongqiao’s production will rise about 10 percent to 2 million metric tons this year, said Christine Wong, executive director secretary and head of investor relations. Xinfa Group and East Hope Group said they aren’t planning cuts. The companies are three of China’s five biggest aluminum makers.
Their stance may hamper curtailment efforts by top global producers including Aluminum Corp. of China Ltd., United Co. Rusal and Alcoa Inc. (AA) who are cutting output to ease worldwide over supply. China’s Premier Li Keqiang wants to bring forward to the end of 2014 a target to eliminate outdated capacity in industries including aluminum.
“Chalco and China will need to do a lot more” to trim excess production, Vanessa Lau, a senior analyst at Sanford C. Bernstein & Co., said from Hong Kong, referring to Aluminum Corp. of China, or Chalco. If other China producers continue to expand, then there’s not much net aluminum capacity being closed, she said.
Aluminum has declined 12 percent this year in London, weighed down by global output that’s exceeded demand for the past eight years, according to data compiled by Bloomberg.
Production worldwide will reach a record near 50 million tons this year, up from 45 million in 2012, Austin, Texas-based Harbor Intelligence forecast.
“Nothing to Change”
“The market is still looking at over-capacity, over-production and an unprecedented overhang of metal,” said Jorge Vazquez, a managing director at Harbor. “There’s a lack of credibility for the producers, and even if these cuts take place, investors expect nothing to change.”
China had capacity of more than 27 million tons last year, compared with consumption of 19.02 million tons, the Economic Information Daily, an affiliate of the official Xinhua News Agency, said June 25, citing the China Nonferrous Metals Industry Association.
Aluminum companies must eliminate more production capacity to raise prices to the cost of output, Oleg Mukhamedshin, deputy chief executive officer of Rusal, the world’s biggest producer, said this week. Inventories of aluminum come to about 12 million tons, excluding China, compared with a “normal” level of 6 million to 7 million tons, he said.
Chalco, China’s biggest aluminum producer, said last month it would halt some output for the first time since 2009, temporarily suspending 9 percent to 10 percent of total capacity.
“The Chinese government is facing the same problem in aluminum as in the steel industry,” said Wan Ling, manager for China nonferrous metals analysis at research company CRU International Ltd. Attempts to rein in capacity expansion have failed in past years, she said from Beijing.
China Hongqiao fell 1.1 percent to close at HK$3.65 today in Hong Kong, while Chalco dropped 3.4 percent to HK$2.29. The benchmark Hang Seng Index (HSI) declined 2.5 percent.
Shanghai-based East Hope, which produces aluminum mainly in Inner Mongolia, isn’t planning to cut output as the company isn’t incurring losses, Ma Lifang, an official with the trading department, said by phone. Chen Lizhi, a vice president of Shandong Xinfa Aluminum and Electricity Group, the main unit of Xinfa Group, said he isn’t aware of plans to suspend or cut capacity.
“Any measures by the Chinese government to rein in the expansion won’t take effect immediately because the ongoing smelting projects, which already have government approval, won’t stop,” said Kevin Guo, Shenzhen-based analyst with Guotai Junan Securities Co. “Aluminum projects are a large contributor of tax revenue and employment to regional governments - regional governments are happy to give green lights to them.”
Still, falling prices may deter some expansion by Chinese producers. East Hope may slow a plan to build a 3.2 million ton-a-year plant in the western province of Xinjiang, the company’s Ma said.
“Smelters with low costs should grab the opportunity to boost their market share as demand remains strong amid weak aluminum prices,” China Hongqiao’s Wong said in a phone interview from Hong Kong, where the stock trades.
The company, which also plans to lift capacity to 2.7 million tons by the end of next year, has secured sales contracts before it builds new production lines, she said. The government is targeting closing outdated plants and China Hongqiao uses advanced technology, Wong said.
To contact the editor responsible for this story: Jason Rogers at email@example.com