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We estimate that China’s aluminium industry accounted for 71% of East Asia’s (excluding India)* flat rolled product (FRP) capacity in 2011, and we expect this dominant share will rise to about 76% by 2022.
This is because non-Chinese-owned mills have seen little significant investment in recent years, outside of foreign mills operated in China and Novelis’s mills in South Korea.
Outside of China, most investment has not been put into the expansion of capacity but instead has been put into technical improvements and process control adjustments.
Much of the growth in China’s capacity will be driven by the continuing trend for the key end-use sectors in mature industries, such automotive, consumer durables and industrial products, to move their supply lines offshore.
However, we expect to see some shift in production capacity to locations such as Thailand and Indonesia, as producers decide to relocate closer to their end-use customers.
Our analysis of future additions to capacity shows China will continue to attract the lion’s share of investment, though the type of investment it receives is likely to change in the years ahead. We expect China to make a qualitative and sizeable shift in new capacity towards the production of higher-value-added FRPs, such as can stock, auto body sheet and heat treated sheet and plate.
We believe that China’s investment in foil stock and common alloy sheet capacity will plateau over the coming decade. We forecast Chinese aluminium FRP capacity to grow 38% in 2011-2022, and become the world’s largest national producer.
Turning to Japan, we project its capacity will be 1.8 million tpy of FRP aluminium by 2022, little changed from the 2011 level. Any investment at Japanese rolling mills is likely to involve changes in process and control equipment and upgrades to obsolete technology, rather than any significant investment in any major expansion of capacity. We expect a similar picture to apply to South Korea and Taiwan.
For 2011, we provide a detailed matrix of product mix with estimated production figures for East Asia’s* major rolling mills.
For non-Chinese rolling mills, our analysis shows that can-body stock production is the single largest product type, followed closely by common alloy coil. Building sheet, litho sheet, foil/fin stock and can-end stock stand out as the largest segments by volume. In contrast, common alloy coil and foil stock dominate the product mix in China.
The output of other product segments lags far behind these sectors on a volume basis. However, our analysis of planned capacity investments in China suggests that this product mix is likely to change significantly over the next 10 years.
The MBR report provides a detailed breakdown of demand by product and market Our analysis suggests that the region consumed an estimated 7.7 million tonnes of FRPs in 2011. It also shows that, as well as dominating production, China dominates the region’s demand and demand growth. Much of the country’s demand has been driven by China’s fast pace of overall economic growth. However, end-use sectors such as construction, packaging and consumer goods have specifically driven growth in FRP demand in China.
Based on our analysis of China’s demographics and socio-economic trends, we estimate that China’s consumption of aluminium FRPs will increase by 65% by 2016. Demand will then continue to grow at a healthy, but more moderate pace out to 2022.
Outside of China, we expect to see annual growth in FRP demand in most of the emerging markets, albeit from very low bases. However, the picture is mixed on a country-by-country basis. We expect Japanese demand to show modest growth over the forecast period as the industrial base is hollowed out, with trend growth averaging at about 1.0% per year in 2011-2022.
Demand for FRPs in Taiwan and South Korea is expected to fare better, with annual growth averaging 3.5-4.5% up to 2022.
In emerging markets such as Indonesia, Vietnam, Malaysia and Thailand, we expect demand to grow by 5.5-6.5% per year on a trend basis, driven by strong infrastructural investment as well as by a growing consumer sector, which is likely to benefit sectors such as consumer durables, packaging and transport.
Rising urbanisation and the growth of the middle class in these countries, resulting in higher disposable incomes, will ultimately drive the overall trend for firm gains in aluminium demand, and we believe that the FRP segment will benefit significantly.
Indeed, we project FRP demand growth in East Asia* on a trend basis to more than surpass MBR’s assumption for long run primary aluminium demand growth of 4.5-5.0% per year.
On the other hand, we expect aluminium FRP demand in the selected markets to grow faster, by an average annual rate of just over 7.0% over the forecast horizon.
This growth will provide new opportunities for suppliers into the Asian FRP sector (including primary smelters, technology providers, service companies, etc).
On a product basis, we expect firm regional demand growth in common alloy coil and building sheet, while sectors such as heat treated sheet and can body stock are also expected to show solid growth over the next 10 years.
On a country basis, we expect China’s demand to show the fastest average annual rate of growth, but other markets such as Vietnam and the Philippines are projected to be growing at a fast pace as well.
In contrast, we expect demand from the economically mature markets in the region, such as Japan, South Korea and Taiwan, to grow at a more modest pace.
MBR has also identified the level of competition for each product segment in terms of an overall competition index and in terms of price. Our analysis shows that products of relatively lower production complexity such as common alloy will tend to have the highest level of competition with lower barriers to entry. In contrast, more complex products (in terms of production process and market structure), such as auto body sheet, will have a lower overall level of market and price competition.
As part of our unique research, we present an analysis of conversion margins for which we have obtained historical data. Our forecasts are based on MBR’s projection of the LME aluminium prices together with an assessment of market conditions. For can body sheet, can end sheet and 1050 H14 sheet we have indicative average margins prevailing in the region as a whole.
In broad terms, our research indicates there is a significant disparity in conversion fees within similar product types due to freight and quality variations. Most buying is done on a six-month to annual basis, with little material sold on a truly spot basis. Unlike Europe and North America, the region’s inventories are generally at a higher level relative to the level of underlying business, though this is now changing towards a “just in time” delivery strategy.
Despite undoubted cyclicality to be expected in the market out to 2022, MBR’s analysis of key East Asian markets shows that bottom-line long-term trends are bullish enough to support positive investment sentiment and business confidence for the industry.
*MBR’s East Asia region (in this case) includes China, Japan, Malaysia, Indonesia, Myanmar, South Korea, Thailand, the Philippines, Taiwan, Vietnam and Singapore.
For more information about further access to our research on this sector please call +44 (0) 207 556 6020 or email Blevich@metalbulletinresearch.com Yang Cao Metals analyst, Metal Bulletin Research ycao@metalbulletinresearch.com