Aluminum Demand in China Set to Double Over Decade, XinRen Says

Aluminum demand in China, the world’s largest consumer and producer, will more than double over the next decade, eliminating a local surplus and boosting prices, according to XinRen Aluminum Holdings Ltd. (XAH)??Consumption may gain 15 percent per year over the next 10 years, down from 17 percent to 20 percent per year over the previous 10, Executive Director Liang Hongbo said in an interview. Coupled with slowing supply growth, this should bring the Chinese market close to balance, he said. XinRen makes 275,000 metric tons of ingots and 50,000 tons of plates a year.??Liang’s outlook highlights the nation’s increasing demand for commodities including aluminum, which may help trim a global surplus that’s estimated by researcher Brook Hunt at 1.4 million tons this year. In April, China’s government ordered a halt to new aluminum projects to combat overcapacity and wastage.??“Demand from the transportation and automobile industries, and infrastructure projects is expected to remain strong,” Liang said Aug. 12 in Singapore, where XinRen stock is traded. “This should send aluminum prices back to pre-Lehman levels of more than $3,000 a ton,” he said, referring to Lehman Brothers Holdings Inc., which failed in 2008, sparking a global recession.??Aluminum on the London Metal Exchange, which reached a record $3,380.15 per ton in July 2008, has fallen 2.4 percent this year and traded at $2,410 per ton at 12:36 p.m. in Singapore. Liang didn’t give a timeframe for his forecast, which also included a rally in Shanghai prices to more than 20,000 yuan. The Shanghai contract was at 17,440 yuan per ton today.??Record Production??Primary-aluminum production in China increased 78 percent in the five years to 2010, and may grow 15 percent to about 19 million tons this year, according to research group Harbor Intelligence. Output climbed to a monthly record of 1.59 million tons in June, according to the statistics bureau.??China will suspend approval of new projects immediately, the Ministry of Industry and Information Technology said on April 20. The government also aims to shutter 619,000 tons of outdated capacity by the yearend, the ministry said in July.??“The aluminum industry has been hurt in the past by the rapid expansion of smelting capacity in China,” said Liang Lijuan, a Beijing-based analyst at Cofco Futures Co. “All this is set to change as the government takes steps to curb overcapacity and restrain energy-intensive industries.”??Aluminum supply in China, which accounts for about 40 percent of global production, will probably equal local demand this year, according to Brook Hunt, a Wood Mackenzie company. Output may rise to 19 million tons this year, Brook Hunt said in May, matching Harbor Intelligence’s production forecast.??‘More Efficient’??“The use of aluminum will continue to increase as more steel gets substituted,” XinRen’s Liang said. “Train cabins and even some car bodies are made purely of aluminum as the world seeks lighter and more efficient modes of transport.” Aluminum is about three times lighter than steel.??China’s high-speed rail network is set to reach 120,000 kilometers (74,556 miles) under a 2.8 trillion-yuan, five-year investment plan running through 2015. China added 10 million vehicles in the first half, bringing the total to 217 million, the Xinhua News Agency said July 19, citing the Ministry of Public Security. Vehicle sales may grow 5 percent this year, the China Association of Automobile Manufacturers said on July 8.??“In the packaging sector, we see more and more plastic being replaced by aluminum,” said XinRen’s Liang. Packaging accounts for about 22 percent of global demand, while transport accounts for 26 percent, according to Harbor Intelligence.??Shares of XinRen have slumped 32 percent in Singapore this year and last traded at 33.5 Singapore cents. Net profit in the three months to June rose 8 percent to 150.7 million yuan ($23.6 million), the company reported on Aug. 11.

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