Sale of Aluminum Processing Assets

China Aluminum [ 12.68 -1.25% ] is standing at a new turning point. If the sale of a controlling stake in the Zhengzhou Cold Rolling Plant of its Henan Aluminum Company (herein referred to as “Henan Aluminum”) is to be sold, it may be the prelude to the retreat of the country.

The reporter was informed that Henan Aluminum was negotiating with Zhongfu Industry [ 24.58 -0.61% ] about the sale of a controlling stake in Zhengzhou Cold Rolling Plant. Zhongfu Industry Management revealed that Zhongfu Industrial will invest in the acquisition of the Zhengzhou Cold Rolling Mill and set up a new joint-stock company in the future. Chinalco will invest in land and equipment, but it will be absolutely controlled by Zhongfu Industry.

The person did not disclose the possible transaction price. “The current transaction price has not been finalized yet, but it has been negotiated for several months and it should be able to close soon.”

The reporter then called Zhongfu Industry and China Aluminum respectively. Yao Guoliang, executive secretary of Zhongfu Industry, said he was not clear about the progress of the transaction. Liu Qiang, the executive director of China Aluminum, made it clear that he had not heard such news.

Loss of doubt

A member of Zhongfu Industry Management stated that Henan Aluminum sold a controlling stake in Zhengzhou Cold Rolling Plant. The main reason was that “Henan Aluminum suffered a severe loss. There are five or six factories below it, which are basically at a loss.”

The aforementioned Zhongfu sources stated that among all aluminum processing companies in Chinalco, Henan Aluminum suffered the most serious losses and was the largest loss household in Chinalco's aluminum system. According to conservative estimates, the loss of Henan Aluminum is at least 300 million yuan.

Chinalco Henan Aluminum Co., Ltd. was jointly invested by Chinalco Zhongzhong Technology, Yichuan Electric Power, and Luoyang Economic Investment Company in 2005. The main body of the company consists of Zhengzhou Cold Rolling Plant, Luoyang Zhongyue Wanji Aluminum Processing Plant, and Luoyang Hot Rolling Mill. Luoyang Cold Rolling Plant, Luoyang Aluminum Foil Factory and Luoyang Casting Plant consist of five Luoyang factories.

Aluminium processing industry insiders pointed out that on the one hand, due to the sluggish market demand caused by the international financial crisis, on the other hand, machinery and equipment could not meet the design requirements, product quality is unstable, and the internal transportation and logistics costs are high. The cost of production remains high.

The above internal factors are most evident in the cold rolling plant in Zhengzhou. The five major factories of Henan Aluminum are concentrated in Luoyang, and only one cold rolling plant is located in another city of Zhengzhou. For the Zhengzhou Cold Rolling Plant, the upstream melting and casting plant is in Luoyang, and the downstream aluminum foil factory is also in Luoyang. The industrial chain is dispersed, and the logistics transportation cost is several times higher than that of other similar cold rolling mills.

According to related reports, the Zhengzhou Cold Rolling Plant is the first project of Chinalco and Henan Province to invest in the aluminum processing business. It plans to invest 1.113 billion yuan, with a designed capacity of 120,000 tons/year, and put into trial production on June 28, 2007. . However, the reporter understands that the actual capacity of Zhengzhou Cold Rolling Plant is far from the design requirements, there are inherent deficiencies in the equipment, and the company's operations are in trouble.

Chinalco’s first turnaround was restructuring of management. In May 2009, Chinalco adjusted the original management team of Henan Aluminum, and sent a batch of officers from the Chinalco system with the best internal management and product quality to urgently go to Henan Aluminum to “fire”.

Vice Chairman of Chinalco Ding Haiyan concurrently serves as Chairman of Henan Aluminum Industry. Fan Daixing, General Manager of Southwest Aluminum Co., Ltd., the general manager of domestic aluminum processing enterprises, is the general manager of Henan Aluminum Co., Ltd., and Deputy General Engineer of Northeast Light Alloy Qu Ming is Henan Aluminum. Deputy General Manager, Deputy Head Accountant Zhan Renzhou, Deputy Chief Accountant of Ruiqi Aluminum Strip with higher level of cost control, was the deputy chief accountant and director of the financial department of Henan Aluminum.

At the reorganization meeting, China National Aluminum Corporation Chairman Xiong Weiping said that the party group of Chinalco Corporation is supporting the company's strength to support Henan Aluminum. The current board of directors and management of Henan Aluminum Group has gathered the strongest management power of Chinalco's aluminum processing sector. Excellent management personnel.

Zhongfu orders

However, progress in turning losses has not been smooth. In December last year, Lianyang Municipal Party Committee Secretary Lian Weiliang, Henan Provincial Party Secretary Lu Zhangong, and China National Aluminum Vice President Ding Haiyan successively visited Henan Aluminum. In fact, the survey is just an official statement. Understanding the actual situation of Henan Aluminum to reverse a serious loss is the purpose of the trip.

One detail that is not noticeable is that in December 2009, Lian Weiliang said that Luoyang City will organize a special team to actively help China Aluminum Henan Aluminum introduce strategic partners.

Aluminium processing industry veterans believe that Chinalco is a master of capital operations and does not lack strategic partners. Even Weiliang is actually suggesting that Chinalco Henan Aluminum's new strategic investor will be a local enterprise in Henan.

Zhongfu Industry Co., Ltd. is the local aluminum company listed on the Sino-foreign joint venture in Henan. It was originally a single electrolytic aluminum production and processing company. In September 2006, it acquired a 100% stake in Yinhu Aluminum, which is located in Zhengzhou with an annual output of 30,000 tons of aluminum sheet, at a consideration of RMB 44.6 million and officially entered the aluminum processing business.

The above-mentioned Zhongfu sources said that after the acquisition of China Aluminum Henan Zhengzhou Cold Rolling Plant, “it will continue to operate in the original factory, the equipment will not move, and there will be no interest in relocating.” The reporter learned that Yinhu Aluminum and Zhengzhou cold rolling The factories are not far apart and the next expansion plan is being implemented. The upstream casting and downstream aluminum foil industry chain of the Zhengzhou Cold Rolling Plant will be fully connected through Yinhu Aluminum.

China Aluminum Subtraction

The aluminum products sold by Henan Aluminum do not belong to the alumina assets that have an advantage in the Chinalco system, but belong to the cold rolling mills in the deep processing process. According to analysts, the aluminum processing sector, one of Chinalco's three major plates, is facing a new turning point in the shadow of local state-owned aluminum plants and private aluminum plants.

Since 2005, Chinalco has expanded its short-board aluminum processing sector through mergers and acquisitions and expansion of production capacity. Incomplete statistics show that Chinalco has successively acquired many companies such as Ruiqi, Fujian, and Northwest Aluminum Processing Plant in recent years. At the same time, Chinalco has invested 10 billion yuan in Chongqing, hoping to create "China's aluminum processing capital." In just a few years, Chinalco has dominated the market with an absolute monopoly.

Under the influence of the financial crisis, the domestic aluminum processing industry encountered a cold winter. However, compared to private enterprises, China National Aluminum Corporation, which has difficulty turning its ship, is even more affected. One fact that should not be overlooked is that Chinalco employs more people and shoulders more social responsibilities. The overall cost of production is higher than that of private enterprises.

Not only that, Chinalco and private companies produce the same products. If the quality and price are the same, Chinalco's production costs are even higher, and it is obviously at a disadvantage in market competition. At the same time, private enterprises are also more flexible in their business strategies.

One example is that at the end of 2008, when the financial crisis hit the most, faced with a sharp drop in orders and a plummeting price, the private company Hangzhou Dingsheng Aluminum Co., Ltd. adopted measures to reduce production, and no losses occurred.

Chinalco, as a central company, cannot reduce losses through suspension of production. Some customers of Chinalco are national key enterprises and key projects. Even if their products are in losses, they must ensure the supply of key customers. In the first half of 2009, Chinalco's aluminum processing business suffered a loss of 411 million yuan, an increase of nearly 22 times from the same period last year, but its sales were still as high as 3.348 billion yuan.

At the same time, Chinalco's management and technical level in the aluminum processing business is not much higher than that of private enterprises. The words that Ding Haiyan, vice president of Chinalco, concurrently chairman of the Henan Aluminum Industry Co., Ltd., after supervising the management, actually said that it was "contrary to private enterprises."

Xiao Yaqing, former head of Chinalco, investigated and put into operation the cold rolling mill in Zhengzhou for five months in November 2007. He left a sentence saying: “It is not easy to make money from aluminum processing. We must strengthen basic management of technology, quality, and equipment. Work hard to reduce costs."

National Retirement

The above-mentioned veterans emphasized that at this stage Chinalco appears to be still the only big player in the aluminum processing industry, but it is already surrounded by a number of private aluminum processing companies.

The above-mentioned private aluminum processing entrepreneurs introduced the southwestern aluminum industry under Chinalco, which has the largest production scale, the best product quality, and the most advanced technological level in the aluminum strip industry. The annual production is estimated to be about 250,000 tons; followed by the private company of Henan, Mingtai Aluminum. Industry, the annual output may reach 200,000 tons; Henan, another privately-owned company, production of Mingtai Aluminum should be more than 100,000 tons, ranking third; ranking fourth is Zhejiang private enterprise Dingsheng Aluminum, 2009 output 10 About tons.

The signal of the country's retreat from the people is that when Chinalco began to consider the assets of the Zhengzhou Cold Rolling Plant to control losses and increase profits, the private aluminum strip companies rely on the support of local governments to reversely invest heavily in order to overtake China Aluminum's aluminum processing business. .

In October 2009, Dingsheng Aluminum invested 5 billion yuan to build an aluminum strip company with an annual output of 600,000 tons. In the future, it will take the annual output of 700,000 tons to take the lead in China's aluminum processing. In addition, Zhongfu Industry announced in December 2009 that the 300,000-ton aluminum strip project was officially started. In February 2010 alone, 200,000 tons of aluminum processing capacity was put into operation.

It is not difficult to see that with the successive completion and commissioning of the large-scale projects, the aluminum processing structure will undergo major changes. Chinalco may not only be washed out of the number one position in the aluminum processing industry, but also may become the third largest in terms of output scale. . This means that the central enterprises leading in the aluminum strip industry are located in private capital and the market is occupied by private enterprises.

It can be expected that with the frenzied investment of private aluminum processing companies, China’s aluminum sheet production capacity will be further oversupply, and processing costs from aluminum ingots to aluminum sheet and aluminum foil will be even more modest. However, private capital is not taken for granted. A person from a private aluminum processing company told the reporter that even though the capacity of the aluminum processing industry is already in excess, more private enterprises hope to achieve greater scale, reduce costs, and then occupy a larger market. Dingsheng Aluminum's original sales general manager, Hua Kunyu, said: "America's annual aluminum consumption per capita is 5 kilograms, and China is currently less than 1 kilogram. The aluminum processing market has great potential in the future."

Not only that, China Aluminum's bauxite mining, alumina, and electrolytic aluminum business will also be hampered by private companies. In recent years, Henan and Shanxi provinces, which are rich in bauxite resources, have been supported by local governments. Local private enterprises and foreign private enterprises have been involved in these businesses. According to foreign media, China Aluminum's market share of upstream alumina dropped to 38%. Before 2005, Chinalco’s market share for domestic alumina was as high as 90%.

“If Chinalco did not make major breakthroughs in the research and development of new materials and new products, or the same products as private enterprises, it would certainly compete with private enterprises,” said Zhou Bangyao, chairman of Zhenjiang Fogg Metals.