INTERVIEW - Not all China aluminium expansion plans realistic
Date: 25-Oct-02
Country: CHINA
Author: Nao Nakanishi
"In recent months a number of smelters which announced the expansions have not proceeded. They've actually announced they are looking for money," Michael Komesaroff, managing director of the Australia-based company, told Reuters late on Wednesday.
"When the reality comes to getting money, it's much harder... I think at the end of 2006, China could be producing about 5.5 million tonnes," he said on the sidelines of the Metal Bulletin conference in Shanghai.
The country is also likely to retire more than one million tonnes of existing capacity over the next two years via shutdowns of older, less efficient or polluting plants, he added.
Komesaroff's projection is starkly lower than the prevailing market view, which pegs China's annual aluminium output capacity at about seven million tonnes by 2005 - compared with less than one million tonnes in 1991.
The country is expected to turn out about 4.2 million tonnes of aluminium this year.
Though government restrictions on smelter expansion had not been entirely effective, they nonetheless had some impact by limiting smelters' access to funds, said Komesaroff, who is a consultant on Chinese capital-intensive industries.
He also said China managed to take 450,000 tonnes of production capacity off-line last year on grounds of poor environmental standards. Beijing has been promoting cleaner pre-baked technology, instead of more common Soderberg pots.
Another one million tonnes or more should be retired over the next two years, in part because of difficulties in obtaining enough electricity for plants that use Soderberg pots, he said.
EXPENSIVE POWER, ALUMINA
Komesaroff said China, which enjoys one of the world's lowest labour costs, would find it tough to compete in the global aluminium industry against traditional producers such as Russia.
"It's hard to see China sustaining a competitive aluminium industry because its power prices are much higher, for example, compared with the Middle East," Komesaroff said.
With Beijing building power transmission systems, which will allow power generators to sell electricity to distant consumers that can afford higher prices, it may become more difficult for some smelters to get hold of low-priced energy, he said.
Smelters in China, most of which are not located in coastal regions, would also need to bear the extra cost of importing alumina, their raw material, he said.
Agreeing with other analysts, Komesaroff said Chinese expansion plans would also be restricted through higher international alumina prices as the country is highly dependent on imported raw materials.