China Hongqiao Group, the world’s largest aluminium producer has decided to expand its operations and improve overall capacities; a move in stark contrast to the reduced usage rate of aluminium and the weighed on prices for the light metal. As to why, we can only assume that the group maintains a positive outlook on the sector despite the bleak picture painted for many of its rivals, and with the group seeing a 39% annual increase up to 2015 despite production cuts, this would be of no real surprise.
The expansion plans include an overall increase in capacity to 6m tonnes this year, building upon the already-considerable capacity of 5.19m achieved last year – this figure may vary depending on market conditions, of course, as the company’s Chief Executive illustrates: “If demand is good, we will stick with the plan. If not, we can slow down new capacity expansion or even suspend it.”
It is predicted that some $2.3bn will be spent on the capacity improvements, which will see the refurbishment and retrofitting of some of the company’s coal-fired power plants in line with China’s new regulation for carbon emissions. Of course, with one of the primary reasons for the success of Chinese aluminium smelting revolving around the provision of cheap power and production costs, how these changes will affect China Honquiao is uncertain at this point.
Hongquiao is also one of the few smelters in China to have set up the capacity to purchase excess inventory, a move which has been noted to support aluminium prices. Critics, however have cited that this has been unable to resolve the growing supply and demand imbalance of aluminium however, and with the group increasing overall production capacity, this imbalance is only expected to increase in severity.
Only time will tell how this move will pay off for China Hongqiao, yet, it is still great to see some organisations maintaining an optimistic view of the market and determinedly pushing for growth.