ALUMINIUM
Braking Hongqiao Groups's Expansion Plans
November 2017
With a stated aim of improving the currently oversupplied aluminium market, China's Ministry of Industry and Information Technology (MIIT) "Rectification and Curtailment of Unapproved Capacity for Aluminium Smelter Industry" policy issued in April, has recently had a substantial impact on the largest primary aluminium producer in the world. Despite curtailment of near 2.7Mtpa of capacity deemed unapproved, and potentially likely to be affected by further heating season cuts, the China Hongqiao Group smelting behemoth remains in a position to supply 10% of global primary aluminium production in 2017.

The Rise and Rise of China Hongqiao Group Capacity 

China Hongqiao Group—a relatively new kid on the block—reached an electrolytic aluminium production level that overtook the long established major smelting companies in 2015. Surpassing UC RUSAL, Chalco, Alcoa and Rio Tinto Alcan in terms of capacity and production, the group became the largest primary aluminium smelting company in the world and has consolidated that position with continued aggressive capacity expansion.

 

 

The China Hongqiao Group itself is a subsidiary company of Shandong Weiqiao Chuangye Group, with its assets in aluminium, alumina and power production. It has been listed on the Hong Kong Stock Exchange since 2011, but is predominantly held by Mr. Zhang Shiping and family, which had mainly focused on the textiles industry before its expansion into the aluminium industry.  


Supply Chain Integration 

The company has all of its aluminium smelting assets in Shandong province, eastern China, and is striving to become a vertically integrated and self-sufficient company across the full aluminium value chain including power. AME believes that Hongqiao may achieve nearly 14,000MW of installed captive coal fired power by the end of 2017 and 16Mtpa of alumina, with the continued intention to achieve near self-sufficiency in aluminium production. Downstream fabrication parks have been set up around the smelting assets enabling the supply of hot metal from smelting direct to the downstream users.  
Being Shandong-based for smelting has not stopped it from successfully developing assets in Indonesia and Guinea—both considered difficult and risky environments to rapidly progress major capital projects. 

In Indonesia, Hongqiao was involved in the first Indonesian smelter-grade alumina refinery with a 1Mtpa capacity plant, and in Guinea they have been instrumental in the development of the first Guinean bauxite mine in 40years as part of the SMB-WAP logistics chain, rising from a production start in November 2015, to an estimated 30Mtpa of export capacity across four mining sites and two river port operations in 2017. 


Phenomenal Smelting Asset Growth  

AME estimates that China Hongqiao Group owned production capacity of around 160kt in 2006, and since 2009 started rapidly expanding with an average capacity increase of 1.2Mt per year. By 2017, AME documents that Hongqiao has eight smelter bases, a total of 37 potlines and ~10.5Mtpa of installed capacity, predominantly comprising 400-600kA reduction cell technology. AME estimates Hongqiao's primary aluminium output may achieve 7.2Mt in 2017, up ~16% compared with its 2016 production of 6.2Mt, despite 2.68Mtpa of unapproved capacity being curtailed in the September Quarter, along with 250ktpa of previously eliminated capacity. 

 

 

Potential and Opportunity 

It is anticipated that with China’s Central Government now attempting to control the oversupplied aluminium industry through the capping of total national smelting capacity, that they may in future strongly regulate capacity growth and production increases. Hongqiao, with a substantial amount of existing but curtailed capacity on hand using advanced technology, is likely to be in a good position when supply growth is permitted to recover.  

While the Central and Provincial Government crackdowns have, at least temporarily, limited production from the company’s continuing expansion plans, this situation also restricts its competitors from rapid expansions. Hongqiao’s additional integration of raw material supply chain from bauxite to alumina and recently constructed large power plants, in addition to its latest smelting technology, would place them in a strong position having assets that, in terms of environmental and energy efficiency, surpass many older and competing projects.