China: A Growing Presence in Automotive and Aerospace Aluminum

There has been considerable concern in the U.S. and elsewhere that China’s exports of primary aluminum are damaging global prices. China would maintain that it imposes an export duty on primary aluminum explicitly to prevent the export of primary metal, largely seen as exporting energy due to the high power cost associated with producing each metric ton of the metal.

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Many outside China believe a considerable amount of metal leaks out of the country in the nominal form of semi-finished products which avoid the export duty, and, indeed, attract a value-added tax refund, only to be subsequently remelted. Large volumes of exports from China make their way to Vietnam, and it is believed much of this material is remelted in the country before being sold.

The Impact of Chinese Aluminum

However, our concern in this article is not so much the impact of primary metal leakage, considerable as it may be, but rather the growing threat of Chinese value-add product manufacturers and the impact they are having on western firms that had previously had the field cornered for automotive and aerospace — to name but two high-tech applications for aluminum — applications.

Chinese material at the end of the last century was considered a joke in terms of quality, but over the first 10 years of this century the country has invested heavily in European and Japanese extrusion, rolling and heat treatment plants and equipment. By the beginning of this decade, Chinese extrusions and commercial sheet/plate were being given equivalence to material from many other sources such as Russia, Turkey, South Korea, Taiwan and other locales.

Are aluminum slabs welded together really "deep-processed extrusions?"
Are aluminum slabs welded together really “deep-processed extrusions?”

Such material is still sold at a discount to European or North American semi-finished products, but its growing penetration and the willingness of major distributors to hold a proportion of their inventory as Chinese material, speaks volumes for its growing acceptance, particularly in terms of quality.

The Lucrative Automotive Market

Still, while China — and to a lesser extent mills in places like Malaysia, Turkey and other locales — gradually ate into western mills’ commodity products, those same western mills moved upstream, investing heavily to meet growing demand for automotive sheet and castings, aerospace sheet, plate and extrusions.

But now, Chinese manufacturers are beginning to enter these markets with a number of Chinese mills gaining Boeing and Airbus approval, underlining their intentions to take a slice of this lucrative market.

Zhongwang Aluminium’s daring announcement that it intended to buy Aleris for $2.3 billion marked a new turning point, in which Chinese firms not just invested at home in the hope they could gradually expand exports of aerospace and automotive products, but are now even looking at taking over the crown jewels of western aluminum producers.

China Zhongwang certainly has enough money and clout to buy its way into the market, it is the world’s second-largest aluminum extruder and has ambitious plans to grow further. The use of aluminum by the automotive sector had been seen by western firms as a major source of growth for a decade to come, and a sector in which they had relatively little competition outside the US and Europe.

The use of aluminum alloy in a car’s main structure will rise by 17.5% each year between 2015 and 2025, Goldman Sachs analysts are quoted as saying by the FT. Growth estimates that have helped support substantial investment by western firms like Aleris, Alcoa and others to meet anticipated demand.

The arrival of the Chinese has the potential to upset that dramatically. The U.S.-based Aluminum Extruders Council has said Zhongwang’s takeover of Aleris “raises very serious concerns for the entire aluminum industry,” and is trying to mobilize support to block further Chinese penetration. We are already seeing the use of anti-dumping and similar litigation as we have in steel to protect domestic producers currently doing very well out of the sector, but fearing major disruption is only just over the horizon.

A Special MetalMiner Project: Learn why China getting market economy status may just be the biggest trade issue of our time – and how it impacts the U.S. aluminum industry – in “China vs. the World.

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