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UPDATED: May 9, 2011 NO. 19 MAY 12, 2011
Limiting Output
To protect the environment and its domestic industries from excess production, China must guide the non-ferrous metal industry
By LAN XINZHEN
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DOUBLE CHECKING: A worker writes down the number of zinc ignots at Hechi Jintai Resource Recycling Co. Ltd. in Guangxi Zhuang Autonomous Region. China is rich in non-ferrous metal reserves, and some of the reserves rank first in the world (LIU GUANGMING)

With rapid growth of investment in recent years, China's electrolytic aluminum industry is facing serious problems of excessive capacity and surplus supply. Driven by local interests, local governments are still accelerating construction of electrolytic aluminum projects and even giving preferential support in land, taxation and electricity prices to attract investment. In some cases, enterprises even commenced construction on certain projects and submitted reports for approval afterward, said the MIIT.

By the end of 2010 the aggregate production capacity of electrolytic aluminum in China had reached 23 million tons, but the actual output was only 15.6 million tons. From January to November 2010 the aluminum smelting industry realized profits of 10.44 billion yuan ($1.61 billion), but the profits only accounted for 3.59 percent of the total sales revenue, much lower than the country's average industrial profit rate.

There are 23 electrolytic aluminum projects being planned with a total capacity of 7.74 million tons and a total investment of 77 billion yuan ($11.85 billion). If these projects were completed, China would have a total production capacity of more than 30 million tons by the end of 2015, intensifying the excessive capacity problem.

"If the tendency of disorderly expansion and redundant construction in the electrolytic aluminum industry isn't curbed, it would be harmful to the sound development of the industry and cause a massive waste of resources," said the MIIT.

Figures from the NDRC show that in the past five years the production capacity of China's electrolytic aluminum industry has grown at an annual average speed of 20.44 percent, the fastest in the world. With expanded production capacity, supply of electrolytic aluminum on the domestic market has far exceeded demand, causing a serious curb in prices.

Zhang Yansheng, Director of the NDRC Institute of Foreign Economics Research, said consideration of supply and demand alone cannot effectively solve the problem of excessive capacity. Effective upgrades need to be made to the entire industry.

Improving the industry

The Economic Daily Industrial Climate Research Center and China Economic Monitoring Center of the National Bureau of Statistics jointly released the CE Non-Ferrous Metals Industry Climate Index Report on April 25, 2011, saying that the climate index of China's non-ferrous metal industry is normal, but the industrial structure needs to be optimized.

According to the report, in the first quarter of 2011 the industry saw overall increases in its sales revenue, total profits and number of employees. The report also said wholesale prices of non-ferrous metals in China increased slightly, influenced by such factors as a slow recovery of the global economy, liquidity surplus, a weak U.S. dollar and capital speculation.

However, the situation of excessive capacity in the non-ferrous metal industry cannot be reversed quickly. Some domestic non-ferrous metal enterprises have blindly expanded production capacity, and most enterprises put inadequate resources toward research and development.

The report says enterprises should actively look to extend the industrial chains of non-ferrous metal processing, accelerate technology upgrading and promote independent innovation.

The report says the regulation policies will influence the non-ferrous metal industry, and supply and demand will likely be further improved. In the second quarter this year the climate index of the non-ferrous metal industry will also sit at a normal level. The report gives five suggestions to optimize the industry's structure.

First, enterprises should accelerate mergers and acquisitions and further improve competitiveness. Mergers and acquisitions, both transregional or transnational, can improve industrial concentration and promote the upgrading and optimization of the industrial structure.

Second, the government should improve the reserve collecting mechanism, which is significant to effectively protecting domestic non-ferrous metals and enhancing the country's pricing power in the international market.

Third, the government should strengthen investment control of non-ferrous metal smelting projects and accelerate eliminating outdated production capacity.

Fourth, the government should actively support enterprises to make overseas investment.

Fifth, the government should increase input in science and technology and push forward technological innovation.

Business Operations of China's Non-Ferrous Metal Industry in Q1

In the first quarter of 2011, output of 10 non-ferrous metals in China totaled 7.51 million tons, a year-on-year increase of 4.7 percent. The output was 487,000 tons less than the previous quarter.

The sales revenue of the industry was 849.43 billion yuan ($130.68 billion), up 34.9 percent year on year. The revenue was 50.49 billion yuan ($7.77 billion) more than the previous quarter.

The industry realized profits of 28.73 billion yuan ($4.42 billion), up 16.7 percent year on year. The profit rate was 3.4 percent, which was 0.5 percentage point lower than the same period last year and 1 percentage point lower than the previous quarter.

In the whole industry, 1,546 enterprises were losing money, accounting for 14.7 percent of total enterprises, almost the same as in the previous quarter. These enterprises lost 4.69 billion yuan ($721.54 million), which was 3.81 billion yuan ($586.15 million) higher than the previous quarter.

(Source: Economic Daily Industrial Climate Research Center)

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