Chinese aluminum scrap supply to keep tight in Q1 2020

Asian Metal: Mr. Xie, thank you for accepting our interview. Please give us a brief introduction of your company.

Mr. Xie: Being engaged in aluminum alloy production for more than one decade and a leading enterprise in secondary aluminum industry, CSMET is a large-scaled group specializing in research, development, production and sales of casting aluminum alloy ingot and liquid aluminum alloy. It created a new sales mode in 2012 based on aluminum alloy ingot business, becoming the first producer in the industry supplying liquid aluminum alloy to middle-distance and long-distance customers directly. With six production bases in Shanghai, Taicang, Suzhou, Henan, Chongqing and Huizhou and two hazardous goods transportation companies for transporting aluminum liquid, the company is preparing for listing at present.

Asian Metal: Chinese market sees continuously tight supply of aluminum scrap in Q4. What are the causes in your opinion?

Mr. Xie: I attribute the supply shortage of aluminum scrap in Chinese market to two reasons. On the one hand, aluminum scrap consumers have stronger demand for the material as they need to rebuild stocks for the upcoming Spring Festival holiday; on the other hand, import quota for aluminum scrap shrinks by five sixths compared with that in Q3 and the dismantling volume of aluminum scrap falls due to the production restriction amid adverse weather conditions in winter. In addition, demand for secondary aluminum alloy shows an uptrend in Q4. Under such circumstances, supply of aluminum scrap remains tight in Q4.

Asian Metal: In Q4, import quota for aluminum scrap decreased sharply by about 85% from that in Q3. What's your view about the import quota for Q1 2020?

Mr. Xie: With joint efforts made by industry association and enterprises, the supply shortage of aluminum scrap has drawn attention of relevant national authorities. On the premise of higher quality of imported aluminum scrap, the quota for Q1 2020 might be not less than that in the same period of 2019. The new standards for imported aluminum scrap are under review of relevant authorities and are expected to take effect in Q2 2020. In my view, the import quota for Q1 2020 may be not lower than that in Q1 2019.

Asian Metal: China is a major consumer of aluminum, but it records insufficient domestic output of aluminum scrap. What are the main causes?

Mr. Xie: China's consumption volume of primary aluminum increased in the most recent decade and most casting aluminum alloy ingot produced by Chinese producers was consumed by automotive industry, from which the demand surged from 2012. A small number of end-of-life vehicles result in limited dismantling volume, so the dismantling volume of aluminum scrap can't meet the demand in domestic market.

Asian Metal: Dismantling activities of aluminum scrap are not standardized in China. What are the disadvantages of Chinese aluminum scrap dismantling now?

Mr. Xie: Firstly, there are no preferential policies for dismantling of aluminum scrap, especially automobiles, and no compulsory retirement policies for automobiles. As Chinese dismantling plants quote low prices for end-of-life vehicles, many private vehicles are sold to rural areas or areas with relatively weak transportation administration after reaching the end of life. Secondly, dismantling plants see high cost and thin profit if operating based on national standards, so private companies are reluctant to invest in this industry as such losses are not acceptable to them.

Asian Metal: Do you think China can be self-sufficient in aluminum scrap or even export the material in future?

Mr. Xie: Taking the life of aluminum used in automobile into consideration, it's not the peak period of aluminum scrap for the time being, so the market sees tight supply. I believed that an increasing number of end-of-life vehicles will enter the market in the coming three to five years, when China will be self-sufficient in aluminum scrap and export the material. Certainly, related supporting policies are needed.

Asian Metal: Supply shortage of raw material aluminum scrap in China leads to continuous increases in secondary aluminum alloy ingot prices. How long will this trend last in your view?

Mr. Xie: Chinese market saw extremely tight supply of aluminum scrap from the end of Q3 and the situation worsened in October, resulting in a sharp decline in stocks of some enterprises, as import quota for aluminum scrap dropped significantly in Q4 and Chinese aluminum scrap suppliers cut production during the heating season. I predict that the situation would remain unchanged before the Spring Festival and the supply would increase a bit after the import quota for aluminum scrap for Q1 2020 is allocated. The supply of aluminum scrap would show an obvious uptrend after the heating season comes to an end next March.

Asian Metal: What did your company do to solve the supply shortage of aluminum scrap in Q3 and Q4?

Mr. Xie: Firstly, we added procurement channels and expanded procurement scope to increase purchase volume of aluminum volume. Secondly, we cut sales volume and reduced orders that were paid in the term of T/T. We optimized customer group and gave priority to liquid aluminum alloy customers and high-quality customers.

Asian Metal: Your company plays a leading role in the industry. Do you have a plan for expanding production capacity in future?

Mr. Xie: We only run part of our production capacity for the moment and will run at full capacity if customers place more orders. As the economic situation is severe in recent years, enterprises have to carry out self-improving measures. We will keep upgrading product quality, strengthening product competitiveness and enhancing research and innovation abilities to be more professional and competitive and put more new projects into operation in the future. However, we will focus on product quality and customer service in the following year rather than expand production capacity.