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Shandong eyes aluminum sector restructuring to cut energy

East China’s Shandong province, the largest production base for primary aluminum in China, has announced a plan to restructure the province’s huge aluminum sector over the coming seven years which, if realised, will have a profound impact on China’s processing and fabrication sector.

The provincial government’s new blueprint for the industry is contained in an official notice, dated November 5 and titled “Implementation Plan to Accelerate High-quality Development of Seven Industries with High Energy Consumption”, which focusses on seven local industries including steel, coke and aluminum, as Mysteel has reported.

The plan sets out the government’s strategy to optimize structure and improve quality and efficiency of the industries targeted, which, for its primary aluminum sector, emphasizes reductions in electricity consumption and value-adding for the light metal.  

As an intermediate step, by 2022, the plan calls for electricity consumption used for aluminum smelting among local enterprises to be reduced to 12,800 kwh/tonne and by 2025, for all electrolytic cells whose amperage is below 400kA to be eliminated and for electricity consumption to be lowered further to about 12,500 kwh/t, the notice said.

The plan is extremely ambitious. Global primary aluminum production totalled 63.4 million tonnes in 2017, of which Chinese smelters contributed 35.9 million tonnes or some 57%, according to data from the World Aluminum Institute. Shandong province is the largest aluminum producing base in China, with Mysteel data showing Shandong’s aluminum smelting capacity to be 12 million tonnes/year.

“The cost of electricity accounts for some 30% of the total production cost during the aluminum smelting process (so) reducing electricity consumption would help the sustainable development of aluminum smelters in the long run,” a Shanghai-based aluminum analyst commented on Friday.

At the moment, China’s domestic aluminum smelters consume about 13,500 kwh/t of electricity so by updating their facilities and adopting new technology, the smelters can enjoy large cost savings during production, the analyst explained.

“Some 60% of China’s total aluminum capacity is made using pots equivalent to or above 400kA but even major aluminum enterprises in China still have some low-spec facilities too. Shandong’s announcement aims to encourage smelters to embrace advanced equipment and to scrap older, inefficient facilities,” she told Mysteel.

The government seems to recognize that in addition to cutting costs through reducing energy consumption, the province’s aluminum producers need to generate more income from the metal they are producing to sustain the industry longer term.

Consequently, the notice says that by 2022 the government hopes that some 50% of the province’s aluminum output would be highly processed and that a minimum of 30% should be additional value in the sales price. The notice does not contain detailed recommendations but Mysteel understands this to mean the portion of primary ingot in total sales is to be reduced and those of higher value-added finished and semi-finished items such as plates, coils, sheet and foil increased.

Within three years of that or by 2025, the government hopes high value-added aluminum products might account for 60% of the total value in the industry, and that total income from the sector will reach Yuan 350 billion ($50.5 billion).

Shandong hopes to encourage the development of high-end aluminum products which could be used in industries such as aerospace, transportation, electronics, shipbuilding and marine engineering, the notice stated.

But as part of the restructuring the provincial government intends for the industry, it also wants to build on the progress made last year in eliminating old and inefficient smelting capacity, the notice says. In 2017, Shandong eliminated ‘illegal’ aluminum capacity of 3.2 million t/y, according to the Shandong Development and Reform Commission, a reference to those smelters built without proper approvals or clearances.

“Essentially, the addition of new aluminum smelting capacity is nearly banned in Shandong,” the analyst explained. “If the provincial government wants to improve the productive value of this industry, a good way is to raise the ratio of high-end products,” she suggested.

Indeed, the notice indicated that smelter enterprises which between 2011 and last year had scrapped capacity and had secured approval to ‘swap’ that old capacity for new, must complete their projects within this year or the earlier approval would be cancelled and the scrapped capacity would be declared permanently obsolete.

Written by Anna Wu, wub@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com