Repeated construction led to overcapacity, and China's aluminum price continued to fall, and even hit a low point in 2015. Most of the electrolytic aluminum processing industry suffered losses. In the first quarter of 2016, although the aluminum price rose slightly, it has recently entered into a downward channel. Under such a background, six enterprises including Chinalco recently reached an agreement to jointly reduce production when the aluminum price on the Shanghai Futures Exchange dropped to 11,500 yuan/ton. The industry believes that the six enterprises together to release the news of production cuts, the main purpose is still to cause a reduction in supply expectations, driving up prices.

The Kunming Conference tasted sweet

Chinalco, and other enterprises to reach an agreement of movements happening in the China nonferrous metals industry association convened meetings, to participate in enterprise in addition to chinalco also includes national electric cast, China hongqiao, jisco group, yunnan aluminum, jinjiang group five key aluminum enterprises, the six aluminum production capacity of enterprises accounted for more than half of the country's total. According to insiders, the idea of cutting production is just a consensus, and the specific content needs further coordination and consultation.

It is reported that the aluminum industry difficulties, the practice of enterprises to help themselves in a group held at the end of last year China's non-ferrous metal industry symposium in Kunming has been used.

On December 10, 2015, China Nonferrous Metals Industry Association held a symposium in Kunming, attended by 14 key electrolytic aluminum enterprises including Aluminum Corporation of China, State Power Investment Corporation and Yunnan Aluminum Corporation. All participants promised to reduce production by 4.91 million tons in 2015, and the completed production capacity would not be put into operation for at least one year.

The Kunming Conference had a certain effect. In the first quarter of 2016, the total output of domestic electrolytic aluminum was 7,368,000 tons, a year-on-year decrease of 1.9%. The oversupply situation in the domestic aluminum market showed a significant improvement, and the aluminum price rose to more than 12,000 yuan/ton. However, the good times did not last long, since the end of April this year, the aluminum price has been falling all the way, the maximum cumulative decline of more than 10%, the lowest price appeared on June 8, 11, 590 yuan. In addition, June is the traditional slack season of the aluminum market. From the point of view of the same period in previous years, the demand of the aluminum market during this period will weaken and the aluminum price will enter a downward channel.

Chinalco and other six enterprises once again called for production cuts, hoping to be able to shoulder the coming decline through a group. Zhang Meng, a non-ferrous metals analyst at Zhuochuang Information, told Beijing Business Daily that "the news of production cuts by enterprises is more to create expectations of production cuts and support aluminum prices".

Supply is squeezing demand

Since 2001, China's aluminum industry has achieved rapid development. In 2015, China's production capacity and output of electrolytic aluminum and alumina accounted for about half of the global total, and overcapacity is serious.

In 2015, China produced 58.978 million tons of alumina, 31.413 million tons of electrolytic aluminum and 52.361 million tons of aluminum, according to the National Bureau of Statistics. China's output of electrolytic aluminum and alumina accounts for 54.5% and 48.8% of the global output, respectively. In 2015, the capacity utilization rate of alumina in China was about 88%, the capacity utilization rate of electrolytic aluminum was 75.4%, the capacity utilization rate of aluminum processing material was 70%, and the output of extrusion material was 19300kt, and the capacity utilization rate was about 68%. The capacity utilization rate of forging products is 67%.

At the same time, the downstream consumer industry continues to slump, so that the aluminum processing industry profit space compression.

The main demand for aluminum comes from the construction industry, transportation industry, power industry and machinery industry, which respectively account for 33% and 25% of the demand, 16.3% and 8.9%. However, the development of these industries all experienced a severe winter in 2015, and the overall slowdown of the real estate industry was obvious.

In 2015, domestic real estate aluminum consumption (including the monthly consumption of rebuilding old houses) was about 11.085 million tons, down 1.2% compared with the previous year. Aluminum used in automobiles reached 3.12 million tons, up 3.2% year on year, down nearly 3 percentage points from the same period last year and nearly 4 percentage points lower than the expectation at the beginning of the year. The annual aluminum consumption was significantly lower than the expected 3.31 million tons.

Due to the dual role of supply and demand, aluminum enterprises are faced with difficulties. According to the financial report, in 2015, Chinalco realized a loss of 16.2 billion yuan in 2014 by shutting down production lines and selling assets. In 2015, Chinalco turned a loss into a profit of 206 million yuan, and the company's net profit loss after deducting non-recurring gains and losses was 6.432 billion yuan.

Insufficient incentive to reduce production profitably

"But even if the aluminum price falls to 11,500 yuan/ton, the six companies are unlikely to cut production." Zhang Meng said when talking about the power of aluminum enterprises cut production. "First of all, the meeting is not a specific cuts, followed by the aluminium cost less than 11000 yuan, 11500 yuan more than 80% of capacity can be profitable, the six companies also have larger cost advantages of leading enterprises, profits is higher than the industry average, actual production and lack of power."

When aluminium prices rose in early 2016, companies showed the same thing. China's output of electrolytic aluminum reached 2.68 million tons in May, the highest monthly output since November 2015, according to data from Shanghai Nonferrous Metals.

It is worth noting that in December 2015, the output of China's electrolytic aluminum was 2.531 million tons, 152,000 tons less than the previous month. It is only reasonable to reduce 400,000 tons less than the promised reduction of 4.91 million tons at the end of the year.

"The reason for the unclear effect of the production cut may be that aluminum prices rebounded by about 1,000 yuan in December, making some lower-cost electrolytic aluminum plants temporarily not cut production," he said. Industry insiders said.

There are also different voices in the industry. Some experts say that the price of electrolytic aluminum needs to reach about 13,000 yuan/ton in order to have a large number of production.

But the fact is that there are 8.07 million tons of electrolytic aluminum capacity under construction and new construction in 2016, and there is a big chance that 3.52 million tons will be put into production in 2016. China's Hongqiao Group, the world's largest aluminium producer, has announced a high-profile increase in production, raising capacity by 800,000 tonnes to 6m tonnes in 2016.

"Once aluminum prices rebound to higher levels, companies that have promised to cut production will start to produce flexibly, and the oversupply situation may worsen, even if it is difficult to resolve the oversupply pattern in 2017." "One expert warned.