Analysts say CHALCO unit's move reflects weak market, overcapacity
A subsidiary of the nation's largest aluminum maker, Aluminum Corp of China, (CHALCO), will stop making electrolytic aluminum and shift its emphasis to producing raw material for the industry, a move that analysts said shows just how unprofitable the sector has become amid weak sales and overcapacity.
According to an announcement CHALCO sent to the Global Times Wednesday, CHALCO Fushun Aluminum Co, one of the companies under CHALCO that produces remelted aluminum ingots, halted output of electrolytic aluminum on Saturday.
Instead, it will focus more on its existing business of carbon products, which are expected to be more lucrative. Besides electrolytic aluminum, Fushun Aluminum has been making carbon products such as carbon anode block and anode paste, which are inputs for aluminum ingots, according to CHALCO's website.
Located in Fushun, Northeast China's Liaoning Province, CHALCO Fushun Aluminum Co is formally known as Fushun Aluminum Plant.
It was founded in 1936, according to the company's website, and it was China's first aluminum smelter.
It had been heavily supported by the central government, as it was one of the prioritized plants in the region's industrialization, the website showed.
Considering market conditions and the unit's situation, CHALCO is adopting "flexible" production planning as a strategic part of its business transformation, the announcement noted.
In terms of carbon material, annual production capacity could reach 12 million tons, the website of CHALCO showed.
The company has made arrangements for affected employees, according to the announcement, without giving details on layoffs or severance pay.
When the Global Times attempted to contact the Fushun unit for comment on Wednesday, a recording said that the phone service had been suspended because the bill had not been paid.
The global economic slowdown has cast a shadow over commodity prices, Wu Chenghui, a Beijing-based independent industry analyst, told the Global Times on Wednesday.
"In addition to declining aluminum prices due to the sluggish economy, China's aluminum industry has been facing the burden of overcapacity," Wu noted.
CHALCO has been losing money for years, although the loss narrowed in the first half of 2015.
The company's loss in the primary aluminum segment for the first half was 1.14 billion yuan ($179.32 million), a decrease of 54.1 percent from a year earlier, according to its interim financial statement in August.
The company said at the time that it faced a supply-demand imbalance in the domestic market and was under continued price pressure.
China remains the largest single producer and user of aluminum, with output of about 2.72 million tons in September. That was far above the level in North America, for example, with 362,000 tons, according to the International Aluminium Institute.
China's aluminum overcapacity has weighed on global prices, as prices for the metal on the London Metal Exchange are at the lowest levels since 2009, the Financial Times reported on October 22.
A Fushun resident surnamed Yang, 59, told the Global Times Wednesday that the factory had been the pride of the local people.
"However, the factory has been struggling for several years, despite the fact that the local authorities intended to expand the factory's production scale to lower its cost," he noted.
Carbon material, which has high added value, could generate more profits than electrolytic aluminum, noted Wu, the analyst.
