There is significant uncertainty regarding the trajectory of China’s aluminum production for the remainder of 2023.
After more than 20 years of rapid growth, China’s aluminum sector recently reached its national capacity limit.
Continued Chinese demand for aluminum has forced Chinese companies to draw up plans for a combined annual capacity of 10 million tonnes. The companies intend to set up this new production across Southeast Asia, mostly centered in Indonesia.
During the third quarter of 2022, the majority of the 1,150 new investment projects involving China took place in Indonesia. Overall, they amount to approximately $1.56 billion.
On the other hand, Indonesia continues to develop its aluminum industry. In fact, the country is home to some of the world’s largest reserves of bauxite, nickel and copper. Moreover, Indonesia recently banned the export of unprocessed bauxite, encouraging foreign investors to build smelters in the country.
What primarily attracts Chinese companies to Southeast Asian destinations like Indonesia is cheap labor and access to energy resources. There is significant uncertainty regarding the trajectory of China’s aluminum production for the remainder of 2023. This comes after a series of power outages jeopardized production in China’s Yunnan province, a region that represents about 12% of China’s total aluminum capacity. In fact, since September 2022, Yunnan has had repeated problems with its production capacity due to low rainfall. These power issues continue to force electrolytic aluminum producers to reduce their energy consumption, resulting in slower production growth. In March, there was a 3% increase in China’s primary aluminum production compared to the corresponding period in 2022. However, this growth occurred at a slower pace than in previous months.
The expansion of China’s aluminum industry in Indonesia will have a significant impact on the global aluminum market, lowering aluminum prices as production capacity increases. Furthermore, there is an increase in competition for bauxite as Chinese companies seek to secure a constant supply of raw materials. Another major concern, particularly for Indonesian authorities, is the environmental impact of Chinese expansion. After all, aluminum smelting is a polluting industry. Therefore, the Indonesian government must ensure that China’s aluminum smelting projects are properly regulated to protect the environment.
In June 2023, Shandong Nanshan Aluminum Co., a major aluminum producer in China, revealed plans to build a sizable refinery with a capacity of 250,000 tons in Indonesia. This ambitious project is scheduled for completion by 2026 and is set to be established on Bintan Island.
Subsequently, in July 2023, the Chinese government approved another two million-ton refinery in Indonesia. That proposal came from Huafon Group, a significant player in the chemical industry: the refinery is set for construction on the island of Sulawesi and has a scheduled completion date of 2025. These facilities will increase supply and will potentially have an impact on the global aluminum price.
Original article published on Money.it Italy 2023-09-09 07:00:00. Original title: La corsa dell’alluminio cinese: quale impatto per il mercato globale?
