Analysis of China's electrolytic aluminum industry in 2021

Characteristics of the aluminum industry chain:

①Single raw material for production: bauxite is almost the only raw material for the production of alumina (the world's only Rusal Achinsk alumina plant uses nepheline ore), and alumina is the only raw material for the production of electrolytic aluminum.

②Single production process: More than 90% of the global alumina is produced by the Bayer process, that is, the alkaline process, and all the primary aluminum is produced by the molten salt electrolysis process.

The biggest environmental risk in the industrial chain is red mud : the production of 1 ton of alumina will produce 1-2 tons of solid waste red mud, which is strongly alkaline. There is no mature treatment plan and can only be stored. Red mud has occurred many times at home and abroad. Mud storage leakage or collapse accidents caused enterprises to stop production.

The base metal with the strongest energy attributes : at least 4 tons of standard coal are required to produce 1 ton of electrolytic aluminum. At the same time, aluminum has many characteristics such as low density, high strength, and corrosion resistance, which can reduce energy consumption in the subsequent application process; secondly, the aluminum residual value is high, the recovery system is complete, and the recycling rate is high. From the perspective of the whole life cycle, aluminum is not a high-energy-consuming metal in traditional perception.

Alumina cost items : bauxite accounts for 40%, caustic soda accounts for 17%, energy accounts for 19%, and the three together account for 76%. Bauxite ore accounts for the largest proportion and is also the cost item with the largest difference between plants. The purchase cost of bauxite determines the cost of alumina plants. Ranking of domestic alumina costs: Guangxi <Guizhou or Shandong (imported mines) <Henan <Shanxi.

China's alumina demand capacity = electrolytic aluminum production capacity * 1.92 + 220.

As of the beginning of December, China's alumina has built a production capacity of 88 million tons and plans to produce at least 2.1 million tons next year. The ceiling of China's electrolytic aluminum production capacity is 45.5 million tons. According to 1 ton of electrolytic aluminum, 1.92 tons of alumina is required. In addition, the non-electrolytic aluminum industry requires 2.2 million tons of alumina each year. In the future, China’s top demand for alumina production capacity is about 90 million tons. Even without considering imports, the existing alumina production capacity can fully meet China's domestic demand. What's more, China's current electrolytic aluminum production capacity is about 39 million tons, which is far from reaching the capacity ceiling. Therefore, China's alumina production capacity is excessive for a long time now and in the future.

Global alumina tight balance is too surplus : Inferred from current prices, global alumina supply and demand will be tightly balanced this year and next, with a slight surplus. The pattern of domestic shortage and foreign surplus will continue. Domestic demand will continue to import low-cost alumina from abroad.

Alumina in Shanxi and Henan is the global marginal capacity: under the global surplus pattern, the marginal overcapacity adjustment in high-cost regions determines that Shanxi and Henan alumina needs to maintain a low operating rate.

The cost structure of electrolytic aluminum : alumina, electricity, and carbon anodes account for 81% of the production cost of electrolytic aluminum, which is the source of cost differences among electrolytic aluminum companies.

The electricity price advantage is the biggest cost advantage of electrolytic aluminum enterprises : the production process of electrolytic aluminum consumes a lot of energy. The production of 1 ton of electrolytic aluminum requires 13,500 kWh of electricity, which is equivalent to 4 tons of standard coal. The electricity cost accounts for more than 30% of the production cost of electrolytic aluminum. There are huge differences in electricity costs among aluminum enterprises, which are the main source of differences in production costs among aluminum enterprises. Energy attributes determine that the migration of electrolytic aluminum production capacity always follows cheap electricity: electrolytic aluminum electricity can be divided into grid electricity and self-provided electricity. If aluminum factories want to obtain low electricity prices, they must find areas with low grid electricity prices or coal prices. Construction of enterprise-owned power plants in low areas. Therefore, the general direction of the migration of my country's electrolytic aluminum production capacity is to find electricity price depressions.

Policy constraints on capacity expansion of the electrolytic aluminum industry :

①Capacity replacement policy: delineate the ceiling of production capacity, replace existing production capacity with the same amount or reduce it, and new projects require production capacity indicators.

②Strengthening the supervision of coal-fired self-supplied power plants has greatly restricted the expansion of electrolytic aluminum production capacity: Since 2017, the relevant departments have strengthened the approval and supervision of new coal-fired power projects in order to prevent overcapacity of coal power; in addition, the coal-fired power plant released in March 2018 The normative documents of coal-supplied power plants require the self-supplied power plants to pay government funds and various cross-subsidies, which further weakens the cost advantage of the self-supplied power plants. Under policy constraints, the construction progress of self-supplied power plants supporting aluminum enterprises has slowed down significantly, directly affecting the production of electrolytic aluminum production.

③Environmental protection constraints: environmental carrying capacity constraints (Xinjiang no longer builds electrolytic aluminum), "2+26" cities autumn and winter production restrictions (Shandong, Henan, Shanxi), coal consumption reduction constraints (Shandong).

Electrolytic aluminum: Capacity replacement policy reduces supply elasticity

① The production capacity replacement policy in the aluminum industry has greatly restricted the production of enterprises: after 2017, new production projects were almost cut in half compared with previous years. There are very few tradable indicators after 2019, and new capacity must be shut down at the cost of the original operating capacity, and does not constitute an increase in capacity.

②The mismatch of time and space in the process of electrolytic aluminum production capacity transfer leads to output loss: In the process of capacity transfer, old production capacity is often shut down and new capacity cannot be started. Even if the industry has high profits in the process, old production capacity It is also unable to resume production, and can only wait for the new capacity to increase slowly, resulting in huge production losses during the period.

③The slow commissioning of new capacity: Due to the interference of construction progress, capital, technical issues, electricity tariff negotiations, etc., the progress is far below market expectations. According to the statistics of Aladdin, an aluminum industry consulting agency, the actual production capacity in 2018 and 2019 is only expected at the beginning of the year 58% and 71% of the value.

Electrolytic aluminum: Capacity expansion can only go to the southwest or Inner Mongolia.

① Low electricity costs: The excess hydropower resources in Yunnan and Sichuan are cheap, and Inner Mongolia uses cheap coal to build self-supplied power plants.

② Possessing production capacity indicators: Inner Mongolia is the region with the most indicators of electrolytic aluminum purchases since the indicator replacement policy; Guangxi relies on the indicators specially approved by the Development and Reform Commission; Yunnan relies on the indicators of cross-regional replacement within state-owned enterprise groups such as Chinalco and Shenhuo.

③The environmental protection constraints are relatively small (compared to Shandong, Henan, and Shanxi).

Electrolytic aluminum: The post-real estate cycle is the biggest push for aluminum consumption.

China's aluminum consumption structure accounts for a larger proportion of construction real estate. If you consider the use of aluminum in house decoration, construction real estate is the largest aluminum sector in my country, which has the most significant pull on aluminum consumption. The main applications of aluminum in the housing completion cycle are aluminum alloy doors and windows, aluminum decorative panels, aluminum ceilings, and lighting.

The growth rate of aluminum consumption has a strong correlation with the growth rate of completed housing area. Since the real estate completion data in August last year turned positive year-on-year, the corresponding aluminum construction profile consumption has also improved.

The new round of rail transit construction also stimulates aluminum consumption, and it is generally estimated that consumption in infrastructure construction accounts for 10%-20% of total aluminum consumption.

Whether in traditional infrastructure or new infrastructure, such as 5G base stations, big data centers, artificial intelligence, UHV, new energy vehicles, new energy charging piles, intercity high-speed rail and rail transportation, and industrial Internet, aluminum can be widely used . Because aluminum is widely used, despite the impact of the epidemic in the first six months of this year, China's apparent consumption growth rate of primary aluminum still recorded a positive growth of 1.5%, showing strong consumption resilience. And its consumption growth rate has a strong correlation with GDP growth rate. The OECD predicts that China's GDP will grow by 8% in 2021.

Electrolytic aluminum: low inventory and not expected to have a significant surplus.

Low aluminum ingot inventory: The current social inventory is less than 600,000 tons, and the Shanghai Futures Exchange's warehouse receipts are less than 100,000 tons, both at historical lows. Entering late January next year, it is expected that there will be seasonal accumulation of aluminum ingots. According to next year's supply and demand balance sheet, the annual inventory will be in a moderately low position.

No significant surplus is expected: First, the elasticity of domestic electrolytic aluminum supply will weaken, relying on new capacity will not cause explosive growth in production, and the electrolytic aluminum will be put into production for a long time, and the volume cannot be increased in the short term; second, relying on the promotion of the post-real estate cycle and new infrastructure , Aluminum consumption has strong resilience, and the elasticity of consumption is much greater than that of supply. There is no significant surplus of expectations next year.