World's Top Aluminum Maker Plans Expansion After 5-Fold Rise

  • China Hongqiao surpassed Rusal as biggest producer last year
  • Follows profit slump as 2015 aluminum glut hit margins

The world’s biggest aluminum producer has grown nearly five-fold in five years. It’s about to get even bigger.

China Hongqiao Group Ltd., which last year surpassed Russia’s United Co Rusal Plc as the biggest maker of the metal, will expand capacity by 16 percent this year to about 6 million metric tons, Chief Executive Officer Zhang Bo said at a press conference in Hong Kong Monday. That comes after data showed China’s aluminum output falling in the first two months of the year as companies reduce output to stem losses.

“Ultimately Hongqiao is taking market share from other producers, as they are one of the lowest-cost producers in China and globally,” Daniel Kang, analyst at JPMorgan Chase & Co., said by phone from Hong Kong. The closely held group has kept costs down by building power plants and developing its own raw materials supply chain, he said.

Hongqiao posted a 31 percent slump in full year net profit on March 11, as margins were squeezed by a price plunge driven in part by excess supply in China. Hongqiao’s aluminum output grew 40 percent last year to 4.4 million tons, exceeding Rusal’s 3.6 million tons.

Prices Bottom

Aluminum prices may have bottomed out and will trade between 11,000 yuan a ton and 12,000 yuan a ton in China this year as demand stays relatively strong, Zhang said. The metal last traded on the Shanghai Futures Exchange at 11,335 yuan a ton, down 0.4 percent for a 4.8 percent gain on the year. The metal lost 17 percent in 2015.

“Aluminum consumption is quite strong and I think the market right now calls for more supply, not less,” Zhang said. He declined to estimate how much the company will produce in 2016.

Hongqiao, based in China’s coastal Shandong province, has ballooned in size since its public listing in 2011. The prospectus for its initial public offering put capacity at the end of 2010 at 1.1 million tons, compared with 5.2 million tons now. The company is still expanding even as it cuts capital expenditure, which will be 15 billion yuan this year, down from 17 billion in 2015, Zhang said.

It’s a “very, very ambitious group,” said JPMorgan’s Kang. “But it’s a bit frustrating for investors because at the moment the size is not giving them any extra pricing power.”

Hongqiao’s shares in Hong Kong rose 0.4 percent to close at HK$4.9 a share on Monday.

— With assistance by Martin Ritchie, and Guo Aibing

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