China aluminium consumption story

Happy New Year to all our readers.

Some of you may have seen a Reuters article a few days ago, with the headline “China aluminum consumption to peak in 2020, says industry body: China Securities Journal“. Here’s a link to the story, in case you didn’t see it.

The first thing I noticed is that the headline did not match the story. The body of the story is all about new uses and increased penetration of aluminium into sectors such as the automobile industry. Second, it’s a story quoting a Chinese newspaper quoting an official who gave a speech - leaving questions about how accurate the information was.

We went back and had a look for ourselves.

The official in question, Wen Xianjun made this comment when he gave a talk at the Bulk Commodity Summit & Mysteel Annual Conference, Dec 18-20 in Shanghai. Wen said although the traditional sectors for aluminium consumption are slower, the base is so big that growth will continue in volume if not in percentage terms. New consumption growth areas have emerged, such as commercial light weight vehicles, construction, overpasses, maintenance panels, and so on. He estimated that 2015 China aluminium demand would be 30.6Mt, for a growth of 9% YoY. He estimated that primary aluminium demand in 2016 will be 32.8Mt, for a 7.2% growth rate.

He also thinks China aluminium consumption growth rate will be 7-8% during the 13th 5 Year Plan, which will equate to about 10Mt demand added. Thus by end of the 13th 5 Year Plan in 2020, aluminium consumption will be around 44Mt.

But we could find no corroboration that he expected growth to slow in the following years. And that is the other thing that struck me about this report. Aluminium is such a versatile metal that it is equally at home in domestic applications as it is in commercial or industrial ones - if not more so. Todays China aluminium goes primarily into housing and construction, then transport, then packaging. But in Western markets, aluminium is used most of all in packaging, then transport, then construction. As China’s middle class becomes more affluent, we are likely to see shifts in consumption patterns that mirror those in the West. China aluminium will increasingly go into beer and soft drink cans instead of glass, into pharmaceutical packets instead of traditional Chinese medicines, and into pre-packaged food rather than fresh vegetables.

AT AZ China, our China aluminium demand growth projections do not show any appreciable slowdown in the next decade.

What’s more, the world’s aluminium industry would rather that such a slowdown does not occur. China needs solid demand growth to vacuum up all the spare capacity, effectively keeping that metal from entering international markets. One thing that China does not do well when demand slows down is to adjust supply accordingly. Just look at 2015.