Henan Province issued its air pollution control plan for the 2018 heating season, which still demands more than 30% of capacity cuts for aluminum smelters and alumina refineries, more than 50% of capacity curtailment for aluminum fabricators, and full closure for CPC calciners and carbon plants. However, the plan also states that smelters that have reached the national emission limits by the end of October 2018 will be allowed to shut down only 10% of capacity. CPC calciners and carbon plants that have met ultra-low emission limits by the end of October 2018 will also be permitted to operate at half of capacity in the winter.

Among the six provinces affected by the winter cuts policy, Henan Province has been the best policy follower. This provincial plan, prior to the central government rolling out any new policy, indicates that Henan will still be a bellwether of air pollution control, which thus has a strong implication on the future policies of the aluminum industry.

From the policy point of view, while the terms for aluminum smelters appear to be relaxed, the requirements for CPC calciners and carbon plants have tightened up, which might fuel further price rises in the anode market that has been in short supply.

This policy may also provide an answer to the question of whether or not to restart the shuttered capacity after March. The cost of production in Henan has been among the highest nationwide. If aluminum prices maintain the current level, there will not be enough financial incentive for smelters in Henan to restart the curtailed capacities, not to mention the recurring costs for 2018’s closure otherwise.

“Commerce found that the quantities and circumstances of aluminum imports threaten to impair the national security,” the U.S. Secretary of Commerce said on Feb. 16.

Commerce is also offering President Trump three recommendations:

• A tariff of at least 7.7% on all aluminum exports from all countries, or
• A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or
• A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

Although it is no surprise that Commerce made such recommendations, it is still hard to understand.

Apparently, the tariff/quota is supposed to target China. But the fact is that around 54% of U.S. primary aluminum imports come from Canada, 19% from the Middle East, 16% from Russia, and 6% from Latin America, according to historical data. China does not export any primary aluminum to the U.S. because of the punitive tariffs of 15% on primary aluminum exports.

According to Trump’s previous comments, Canada may be exempted from any tariffs/quotas, meaning that only less than half of the imports would be affected. Russia and Middle-East countries such as U.A.E. might end up being unintended victims.

The biggest victims might be the U.S. downstream companies and consumers who would ultimately bear all the costs. A few upstream companies such as Alcoa and Century Aluminum might benefit from the price hikes resulted from supply shortages of primary aluminum. The biggest winner, however, would be the Trump administration who relies heavily on working class votes and is seeking reelection, despite that the tariff/quota would probably end up hurting the working class interests.

The tariff/quota might lead the old and outdated capacity in the U.S. to be restarted, but it might also counter-productively result in more imports, spurred by elevated prices. It might also provoke retaliation from aluminum exporting countries.

JISCO’s first shipment of alumina of 34,200 tons from Jamaica arrived on Feb. 5 in Lianyungang, a port in Jiangsu Province, marking that JISCO’s vertical integration strategy has finally come to fruition. JISCO, a steel and aluminum conglomerate, operates three potlines in Gansu Province with a total capacity of 1.75 million tons per annum but had long been handicapped by the lack of bauxite and alumina resources, until it bought Alpart for $299 million from U.C. Rusal in July 2016.

Located in the south of Jamaica, Alpart includes bauxite mines with an annual output of 4.9 million tons and three alumina production lines with a total annual capacity of 1.65 million tons, which were fully closed in 2009 as a result of the global financial crisis. One production line was restarted in October 2017 and the other two are expected to come on line in the first quarter of 2018. To further meet its needs for alumina, JISCO signed a non-binding agreement with the government of Jamaica in September 2017, planning to expand the capacity of the refinery to 2 million tons per annum by the end of 2020 and build another refinery with an annual capacity of 2 million tons in Jamaica.

Zhongfu Industrial announces that the company expects a net loss of 180 million yuan ($28.6 million) in 2017. Affected by the winter cuts policy, the company curtailed an aluminum smelting capacity of 225,000 tons and an anode production capacity of 82,500 tons for maintenance during the heating season. Coal mining business also suffered serious losses.

Located in Gongyi, Henan Province, Zhongfu Industrial is a large aluminum enterprise that has developed a business chain of coal-energy-aluminum-fabrication over the past decade. Its costs, however, are still higher than the national average. The company currently operates an anode plant with an annual capacity of 150,000 tons, two smelters with a total annual output of 750,000 tons, a hot rolling mill of 600,000 tons, a cold rolling mill of 450,000 tons, as well as a coal mine and a captive thermal plant.

For more related policy analysis, please refer to the following articles：
The Promised Road: Where is China’s Aluminium Industry Headed? (Part 1)
The Promised Road: Implementing Aluminium Capacity Cuts (Part 2)
The Promised Road: China’s Aluminum Industry in 2018 (Part 3)

Sunstone Development Co., Ltd signed an agreement on Feb. 1 with Yunnan Aluminum and the local government to build an anode plant with an annual capacity of 900,000 tons in Qujing City, Yunnan Province. The project will be constructed in two phases, 600,000 tons for Phase 1 and the rest for Phase 2. The total investment is expected to reach 2.7 billion yuan ($429 million). The products will feed the fast-growing aluminum industry in Qujing City, where Yunnan Aluminum currently operates two aluminum smelters with a total capacity of 680,000 tons per annum.

Headquartered in Dezhou, Shandong Province, Sunstone is one of largest anode suppliers in China, operating several plants across the country with a total annual output of 875,000 tons. The company also has several other anode plant projects under construction, which will double the company’s operating capacity by the end of 2018. Benefiting from the surge in anode prices, the company expects net profit in 2017 to be around 549 million yuan ($87 million), an increase of 517.44% over 2016.

Bosai Group entered into an agreement with the local government of Gaizhou city on Feb. 2 to invest 6 billion yuan (≈$952 million) to build an alumina refinery with an annual capacity of 2.5 million tons in the city. The project will use Bosai Group’s overseas bauxite resources and is scheduled to be operational in the second half of 2019.

Gaizhou is a county in Yingkou city, Liaoning Province, where Zhongwang Group has installed two potlines with a total capacity of 890,000 tons per annum. Apart from using the city’s convenient logistics and transportation system, the more important reason behind the deal may be to win over this big client. Notably, this is the third large alumina refinery project introduced into Liaoning Province, following the Jinzhou Port alumina refinery project with a planned capacity of 10 million tons per annum and the Dandong alumina refinery project with an annual capacity of 5 million tons.

Headquartered in Chongqing, Bosai Group is a privately-owned international mining enterprise with an annual output of 3.5 million tons of bauxite, 1 million tons of alumina, 330,000 tons of aluminum, and 150,000 tons of various aluminum products. It also owns more than 300 million tons of high-grade bauxite reserves in Ghana and Guyana.

Yunnan Aluminum Co., Ltd. may be acquired by Chinalco Group. Yunnan Aluminum announced on Jan. 31 that Yunnan Metallurgical Group, the controlling shareholder of the company, intends to transfer the controlling interest to Chinalco Group. The relevant proposals have not yet been finalized so far and all parties are actively negotiating the transaction.

Benefiting from rising aluminum prices and improved costs, Yunnan Aluminum expects net profit for 2017 to be approximately 655 million yuan ($104 million), an increase of 488% over 2016. The company currently operates an alumina refinery with an annual output of 1.4 million tons and several aluminum smelters with a total capacity of 1.58 million tons per annum. The company also has three greenfield aluminum smelter projects under construction, which will increase the total smelting capacity to 3 million tons per annum when completed.

Chalco discloses on Jan. 31 that it plans to issue shares to repurchase all outstanding shares of its four subsidiaries. The transaction is estimated to reach 12.704 billion yuan(≈$2 billion), including 25.67% stake in Baotou Aluminum, 30.80% stake in Chalco Shandong, 36.9% stake in Zhongzhou Aluminum, and 81.14% stake in Chalco Mining. After the repurchase, the four companies will become Chalco’s wholly owned subsidiaries.

Chalco is listed on the Shanghai Stock Exchange and the Hong Kong Exchanges and has been suspended since Sep. 12, 2017. Benefiting from rising alumina and aluminum prices, the company expects full-year net profit to increase 269% to 1.362 billion yuan ($214 million) in 2017.

 

China produced a total of 68.9767 million tons of alumina in 2017, an increase of 7.9 percent from 2016, according to the data released by NBSC. The total output of aluminum semis and products reached 58.3239 million tons, up 9.5% YoY. Henan, Shandong, and Guangdong ranked the top three. Henan surpassed Shandong for the first time to become the largest producer for aluminum semis and products.

China produced 2.71 million tons of aluminum in December 2017, up 15.3 percent from 2.35 million tons in November and down 1.8 percent from the same period last year, according to the official data released by NBSC on Jan. 18. For the full year, the output totaled 32.27 million tons, a rise of 1.6 percent from 2016.

Taking into account the difference in actual production days between months, the average daily output in December reached 87,420 tons, an increase of 11.6% over November, reversing five months of declines. The increase was mainly contributed by a few new projects in Inner Mongolia and Guangxi. As the legalized capacity and the capacity with special approval in Guangxi and Yunnan are coming on line, the average daily production is expected to continue to climb in the next few months. If the aluminum prices maintain the current level or rise, there will also be an economic incentive for some smelters in Henan, Shanxi, and Shandong to restart the shuttered capacity after March.