Demand for aluminum bar to keep weak
----Interview with Haiyuan Qin
General Manager
Guangxi Deyuan Aluminum Co., Ltd.
- Guangxi Deyuan Aluminum Co., Ltd., established on January 10, 2020, is a nonferrous metal group company integrating production and logistics. Adhering to the purpose of "acting with virtue and being practical for far-reaching" and relying on the abundant aluminum resources in Pingguo, Guangxi, the company focuses on R&D on melting technology, processing, and production of aluminum alloy bar. By reasonable layouts in industries in nonferrous metals, aluminum wire and cable, and secondary aluminum, accompanying with integrative development of commercial service, the company aims to boost the metal manufacturing industry of Pingguo to become stronger and bigger.
- Asian Metal: Hello, Mr. Qin. Thank you for accepting Asian Metal's interview. Please introduce your company briefly.
- Mr. Qin: Our company is a nonferrous metal group enterprise integrating production and logistics. We focus on the R&D of melting and casting technology, processing and manufacturing of aluminum alloy and aluminum bar. As the trading company of Deyuan Aluminum Co., Ltd., Guangxi Deyuan Trading Co., Ltd. started is business from the trading of copper scrap in military factories to the sales of aluminum bar, aluminum ingot and other related products now. Guangxi Guoze Aluminum Resources Technology Co., Ltd., relying on the opportunities arising from comprehensive recycling and utilization of renewable resources polices, plans to build a secondary aluminum production project with an annual production capacity of 200,000t. After the project is put into operation, it will generate annual output value of 3.5 billion yuan (507 million US dollars).
- Asian Metal: The prices for primary aluminum kept falling from the historic high since March this year. What influence does it have on the consumption of aluminum bar, and will the prices of aluminum rebound in September?
- Mr. Qin: There are two main reasons for the continuously declining prices of primary aluminum since March this year. In the first place, since March, some downstream deep-processing enterprises halted or reduced production and cut orders because of the epidemic outbreak in some regions of China. In addition, due to the blocked transportation caused by the epidemic, products couldn't be shipped normally, and the social consumption capacity also stagnated depressed by the epidemic. The direct impact on the aluminum bar market is that the output of aluminum bar producers in South China dropped by 30%-50% compared with the normal level, the orders declined by half, and the inventory increased. The third quarter is the off season of the aluminum market and the prices of aluminum would be difficult to rise significantly if the government does not issue more aggressive policies to stimulate consumption. We reckon that prices for primary aluminum would fluctuate slightly at RMB17,000-18,500/t (USD2,453-2,669/t) in the third quarter. The primary aluminum market will enter the peak season in September, when prices for primary aluminum might rebound.
- Asian Metal: April and May are the peak season in the previous years, but the demand for aluminum bar this year is obviously weaker. What do you think is the reason for this?
- Mr. Qin: The aluminum bar market kept quiet in April and May this year mainly because of the domestic and abroad factors. From April to May, some areas in China witnessed epidemic outbreak again, especially Jiangsu, Zhejiang and Shanghai. In order to coordinate with the government's anti-epidemic measures, enterprises stopped or reduced production, so orders from downstream consumers decreased, and the overall social consumption capacity declined. The blocked transportation also leads to the failure of normal delivery of products and a longer destocking period. External factors such as the Russia-Ukraine conflict, high inflation in Europe and America, and the Federal Reserve's interest rate hike weakened the demand in European and American markets. Our export orders decreased, which reduced our total orders by more than 30% from April to May, and our inventory pressure increased significantly.
- Asian Metal: Also, September and October are the peak season in previous years. Will the demand for aluminum bar also keep staying sluggish this year, and what is the trend of treatment charges (TCs) for the material?
- Mr. Qin: In view of the sluggish real estate market, we are bearish about the aluminum bar market from September to October this year. However, the September-October period is the peak season in the whole year, so the overall sales will be better than those in July-August but will be weaker than the previous years. We predict that the TCs would hover at RMB350-650/t (USD50.50-93.79/t).
- Asian Metal: A number of new aluminum bar projects will be put into operation in Xinjiang and Yunnan in the second half of this year. Does the Chinese aluminum bar market witness a surplus in production?
- Mr. Qin: At present, the production capacity of aluminum bar in China is indeed in excess. At present, the average operating rate of aluminum bar in China is between 45% and 50%, and the output is basically maintained in a tight balance. We believe that the application prospect of aluminum in the future is still relatively broad, and some aluminum products that replace steel and iron have yet to be developed. We are optimistic about the development prospect of the aluminum market in the future.
- Asian Metal: In the market, secondary aluminum bar is a strong competitor of primary aluminum bar. What do you think are the advantages of secondary aluminum bar over primary aluminum liquid, and how should primary aluminum bar producers deal with this?
- Mr. Qin: The biggest advantage of secondary aluminum bar is the low cost, because secondary aluminum bar is produced from aluminum scrap, which has an advantage in price. However, secondary aluminum bar is mainly used to produce low-end 3 series and 6 series aluminum bar because of the high impurity content, while pure aluminum liquid can be used to produce high-end aluminum bar with high added value. When we adjust the product structure, we use pure aluminum liquid to produce high-end aluminum bar to earn higher added value and use aluminum scrap to produce low-end 6 series aluminum bar. The latter is mainly based on volume, with small profits and quick sales.
- Asian Metal: Amid the fierce competition in Chinese aluminum bar industry, how does your company maintain its competitive advantages, and do you have any plans for new projects in the future?
- Mr. Qin: In the future, we have no plan to develop new projects, and we will finish the projects at hand first. We focus on production of primary aluminum bar and particle and will put secondary aluminum bar and secondary aluminum alloy ingot into normal production in the second half of this year. Facing the fierce competition in aluminum bar industry, we will maintain our competitive advantages by improving the quality of products and service level, establishing a good brand image, and producing high-quality aluminum processing products for customers.
- Asian Metal: Thank you again for accepting our interview. I wish Guangxi Deyuan Aluminum Co., Ltd. a prosperous business and always be at the forefront of the industry.
- Mr. Qin: I am very grateful to Asian Metal for providing us with a platform for learning and communication. I hope that Asian Metal will continue to provide more, faster and unique industry information to the nonferrous metal industry in the future.
