The survival prospects of aluminum companies are worrying

The survival prospects of the aluminum industry in China remain highly uncertain. Despite significant achievements in development, the sector is grappling with a severe overcapacity problem. The imbalance between supply and demand has led to declining product prices, resulting in substantial operational losses for many companies. To address this, boosting domestic demand is essential, but the industry itself must also take proactive measures—such as limiting production capacity growth and accelerating the elimination of excess capacity. In addition, continuous technological upgrades and cost reductions are crucial to cope with rising energy costs and potential bauxite shortages. In 2012, the price of electrolytic aluminum continued to fall throughout the year, dropping to around 15,000 yuan by December—a 7% decrease from the beginning of the year. As a result, nearly all electrolytic aluminum producers faced losses, except for a few in the northwestern regions. According to data from the China Nonferrous Metals Association, domestic electrolytic aluminum production reached 1,661,790 tons in November alone, with total output from January to November reaching 1,873,200 tons, representing a 12.29% year-on-year increase. This growing surplus, combined with shrinking profits, has created a bleak outlook for the industry. Although 2012 saw a long-term market correction, expectations for a recovery in 2013 are not based on an improvement in supply and demand fundamentals. Instead, the anticipated rebound may be driven by broader macroeconomic factors, such as potential reforms similar to the 401K pension plan, which could stimulate the stock market and lead to a mid-to-long term bull run. Additionally, external markets may experience upward momentum, potentially lifting domestic aluminum prices. However, the recovery is expected to be limited in scope. Looking ahead, the industry’s future remains troubling. For example, Xinjiang plans to build an aluminum production capacity of 15 million tons by 2015, which will likely accelerate mergers and acquisitions within the sector. As competition intensifies and costs rise, smaller players will struggle, leading to more bankruptcies and consolidations. This process will create new opportunities for surviving firms. It’s worth noting that this pattern is common across industries: when too many players enter the market, profits thin out, and eventually, losses become inevitable. The current moment is critical for the survival of weaker companies, with larger enterprises likely to acquire or absorb smaller ones. As more businesses fail, the market will gradually consolidate, leaving room for stronger players to thrive. At the same time, national policies are pushing for industrial upgrading, aiming to move the sector toward high-end value chains. This shift implies that midstream industries like aluminum oxide and electrolytic aluminum may have limited long-term potential. With rising costs, these sectors now face a "boiling frog" scenario—slowly being squeezed without immediate awareness. It's reasonable to expect that the overall industry status will continue to worsen, with no signs of a sharp or rapid recovery. Instead, a modest rebound in the coming year may occur, followed by a prolonged period of decline. The aluminum market is heading into a long bearish phase.

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