China Zhongwang Holdings Ltd., Asia’s largest industrial aluminum extrusion products maker, said orders this year may rise by more than 20 percent as it shifts its focus to the domestic market where demand is steady.
China “is still in the stage of fast urbanization and industrialization,” Lu Changqing, executive director and vice president of Liaoning-based China Zhongwang, said in a Beijing interview with Bloomberg News on Jan. 9. Lu did not give an actual forecast for profit or sales. The country is the world’s largest producer and user of the metal.
Rising manufacturing in China and India may signal increased buying of consumer appliances and cars, lifting demand for aluminum extrusions, which are also used in aircraft, trucks and wind turbine blades. Aluminum prices may rise to a six-month high by the end of the quarter as processors replenish inventory to meet a rebound in demand, Vedanta Resources Plc, India’s biggest producer, said Jan. 11. Alcoa Inc., Rio Tinto Group and smelters in China are cutting production after prices dropped 19 percent last year, curbing profits.
“The demand for industrial aluminum extrusion products will grow very fast,” said Lu. The company’s gross profit margin will also improve this year from 20 percent in the third quarter in 2011, as it will produce more high value-added products used in aviation, ship building and the energy industry, Lu said, without elaborating.
Aluminum prices in China will stabilize after falling for the past two years on possible production cuts at smelters and increasing demand from the industrial sector, Lu said.
Alcoa, the largest U.S. producer that reported its first loss in two years this week, has said China may use 70 percent of its capacity in 2012. Three-month aluminum fell 0.6 percent to $2,149.25 a ton on the London Metal Exchange at 12:36 p.m. in Shanghai. March-delivery aluminum on the Shanghai Futures Exchange dropped 0.3 percent 16,105 yuan ($2,550) a ton.
“China’s aluminum prices will stabilize around the current level because prices have already fallen to the break-even point which is the marginal cost of production at some of the less-efficient smelters,” said Lu.
Zhongwang used half a million tons of aluminum ingots in 2011 and the metal accounted for about 85 percent of its total cost of production.
Still, China’s import growth fell to a two-year low in December, underscoring a slowdown in the fastest-growing major economy that deepens risks for the global outlook. The economy will expand 8.5 percent this year, compared with 9.2 percent in 2011, the median of 14 economist estimates compiled by Bloomberg show. That would be slowest since 2001.
Increasing manufacturing in China and India may support demand for extrusions. The Purchasing Managers’ Index in India rose to 54.2, the most in six months, from 51 in November, HSBC Holdings Plc and Markit Economics said Jan. 2. In China, the index was at 50.3 from 49 in November, the Beijing-based logistics federation said Jan. 1. A number above 50 indicates expansion.
“It remains to be seen if increased Chinese demand can make up for the lost demand from countries such as the U.S.,” Xu Jinshun, analyst at Guoyuan Securities (Hong Kong) Ltd., said by phone today. Xu has a Neutral rating on the stock.
Hong Kong-listed shares of Zhongwang dropped 39 percent last year, compared with a 20 percent decline on the Hang Seng Index. The stock fell 1 percent to HK$2.86 today.
Zhongwang will raise its annual capacity to 1 million tons by the end of this year, from the 700,000 tons in 2011, Lu said.
China is still short of high-end aluminum extrusion products, especially in the industrial sector, Lu said. Some of the industries which have potential to become big users are still in their “infancy,” including the heavy truck manufacturing, Lu said.