In the first quarter, under the influence of falling prices, high raw material prices, increase in electricity prices, adjustments to export tax rebates and other factors, 80% of the electrolytic aluminum industry is currently suffering large-scale losses. Moderator: Yan Hui, guests: Chang Jiang Securities Research Institute, Ge Jun presided over Ren: Since 2004, the state has carried out major macro-controls on the high energy-consuming electrolytic aluminum industry, but the effect of regulation in 2004 was not very significant. Domestic electrolytic aluminum production still reached 6.67 million tons, a significant increase of 22.85% year-on-year. The demand was 5.967 million tons, a year-on-year increase of 16.38%, and the supply surplus was 703,000 tons. In 2005, the state increased its control over the electrolytic aluminum industry. Under the influence of multiple factors, the electrolytic aluminum industry currently suffers 80% of losses. What do you think is the main reason for the loss? Ge Jun: It is a combination of "visible hand" and "invisible hand." On the one hand, since the country’s macro regulation of the electrolytic aluminum industry in 2004, domestic electrolytic aluminum markets have suffered from weak production capacity due to severe overcapacity, adjustments to export tax rebate policies, domestic aluminum prices have been depressed, and raw material alumina prices have been rising, making electrolysis. Aluminum companies cannot effectively absorb the high costs. Alumina is the main raw material for the production of electrolytic aluminum, accounting for 40% to 50% of its cost. Due to resources and other factors, the domestic alumina production capacity has not been able to meet the demand of the electrolytic aluminum industry. The imported alumina accounts for about 60% of the global spot alumina production each year. The global economic recovery since 2003, especially the rapid growth of China's economy, has led to a rapid increase in global electrolytic aluminum production, which has led to an increase in demand for alumina. In 2003, the domestic consumption of alumina was approximately 11.5 million tons, and the supply gap increased from 3.83 million tons in 2002 to 5.63 million tons. In 2004, under the state's macro-control of the electrolytic aluminum industry, the domestic demand for alumina still reached around 1340 tons, a year-on-year increase of 16.5%. The increase in alumina demand from the world, especially China, has led to a substantial increase in alumina prices since 2003. Currently, domestic alumina prices are 4,330 yuan/ton, and international prices are 4,800 yuan/ton. For electrolytic aluminum producers, The increase in raw material costs is one of the main reasons for its loss. On the other hand, the electrolytic aluminum industry is a high-energy-consuming industry (13500 to 15000 kWh of electricity per ton of aluminum), and electricity accounts for 30 to 40% of its cost. In order to curb the blind and excessive growth of the industry, the government has raised the price of electricity several times since 2004, resulting in a significant increase in the cost of tons of aluminum in electrolytic aluminum enterprises by about 1,270 to 1,800 yuan compared with 2002, and the cost of electricity has increased dramatically. In addition, the adjustment of export tariff policies is one of the reasons for the industry's difficulties. In order to suppress the electrolytic aluminum industry, the state has repeatedly adjusted its export policy. Since January 2004, the export tax rebate rate for aluminum ingots has been reduced from 15% to 8%, and since domestic exports of aluminum ingots remain high in 2004, the State Administration of Taxation has again adjusted the export tax rebates for aluminum ingots since January 2005. Since then, the export tax rebate for aluminum ingots has been abolished and an export tariff of 5% has been imposed. The adjustment of the export tax rebate rate has caused the price ratio of domestic and international aluminum prices to continue to decrease. Exports of aluminum ingots have become marginal and even unprofitable, which has limited the export of electrolytic aluminum to some extent. However, in the first quarter of 2005, the output of domestic electrolytic aluminum increased by 14.3% year-on-year, the import of alumina increased by 45.1% year-on-year, and the export of electrolytic aluminum increased by 8.3% year-on-year, making preferential policies for processing of alumina processing cancelled. The introduction of the policy will result in a sharp reduction in the export of electrolytic aluminum and a further increase in the supply of domestic electrolytic aluminum. Moderator: Since May 2004, domestic and international electrolytic aluminum prices have deviated. International aluminum prices have benefited from the rapid growth of the global economy, especially the United States, and have continued to rise. This year's international aluminum prices began to fall. Does this pose a pressure on domestic aluminum prices? Ge Jun: The decline in international aluminum prices will increase the domestic and international aluminum prices (assuming that the domestic aluminum prices remain unchanged), making the profit margin of domestic electrolytic aluminum exports decrease, which is not conducive to domestic exports of electrolytic aluminum. At the same time, due to the existence of the arbitrage mechanism, domestic electrolytic aluminum prices will also be affected and will fall. Moderator: How long do you think the current night of electrolytic aluminum will last? Ge Jun: In the short term, the development of the industry still faces many unfavorable factors. The introduction of coal-fired electricity linkage scheme has led to an increase in electricity prices and continued to increase the production costs of electrolytic aluminum enterprises. The global alumina production capacity of raw material aluminas cannot be put into production quickly, causing prices to remain high in the short-term, and the expected cancellation of preferential treatment policies for alumina processing will lead to electrolytic aluminum production. The export was subject to a greater degree of restrictions, which also increased the domestic supply of electrolytic aluminum, domestic aluminum prices will rise weak. The above factors determine that the electrolytic aluminum industry still faces severe challenges before mid-2006. In the medium and long term, with the ease of power supply easing and the release of new alumina production capacity worldwide, alumina prices are expected to fall. The obsolescence of production processes and production capacity will cause the domestic supply and demand situation of electrolytic aluminum from a serious surplus to a balance between supply and demand and even exceed supply. With the shift, the price of electrolytic aluminum will be supported and may rise further. The electrolytic aluminum industry will usher in the dawn of darkness. Moderator: Last week, the government introduced a new policy of stabilizing housing prices, forming a certain negative for the real estate industry. What kind of extended impact on the electrolytic aluminum industry? Ge Jun: The construction industry is a major consumer of electrolytic aluminum, accounting for 35% of the total demand. Recently, seven ministries and commissions jointly issued measures to suppress the real estate industry, will slow down the demand for electrolytic aluminum upstream, so that the domestic aluminum prices may further decline. (China Securities Network)
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