Quoted from Sina Finance

Original title: Grasp the secondary aluminum under the 'dual carbon' strategy

In 2020, the total carbon dioxide emissions of China's electrolytic aluminum industry will be about 426 million tons, accounting for about 5% of the total net carbon dioxide emissions of the whole society.

At the beginning of February this year, the Ministry of Industry and Information Technology of the People’s Republic of China first proposed that the aluminum industry should “plan a low-carbon development path” in 2021, and a series of related policies were subsequently introduced. Aluminum ushered in a period of strategic opportunities for development.

A must for carbon reduction

As an important industrial raw material, aluminum is also indispensable in the world today, and China is the world's largest producer of electrolytic aluminum. Since 1990, China's electrolytic aluminum production capacity has expanded rapidly. In 2020, electrolytic aluminum production will reach 37.337 million tons, accounting for 57% of global electrolytic aluminum production. During this period, the compound growth rate will reach 21%. In terms of energy structure, coal-fired power generation accounted for 88%, while hydropower, nuclear power and other renewable energy accounted for only 12%. But on the other hand, the problem of high carbon emissions of electrolytic aluminum is indeed more significant. In 2020, the total carbon dioxide emissions of the domestic electrolytic aluminum industry are about 426 million tons, accounting for about 5% of the total net carbon dioxide emissions of the whole society. In contrast, the carbon emission of recycled aluminum with the same process is only 0.23 tons, which is 2.1% of the carbon emission caused by electrolytic aluminum production. Compared with the production of one ton of electrolytic aluminum, each ton of recycled aluminum can be recycled and reused, which can save 13,000 kWh of electricity and reduce ore mining by about 11 tons.

In the context of the strategy of carbon neutrality, the country is obviously suppressing the production capacity of electrolytic aluminum. In April 2017, in the context of supply-side reforms, the state issued an electrolytic aluminum reduction policy, clarifying the goal of total electrolytic aluminum control, optimization of inventory, and dynamic balance of supply and demand. Inner Mongolia, a major electrolytic aluminum province, announced that from February 2021, it will cancel some preferential electricity price policies for electrolytic aluminum enterprises in West Mengxi, and collect policy cross funds for enterprise-owned power plants. In August, the National Development and Reform Commission further improved the electrolytic aluminum industry's tiered electricity price policy. First, the electrolytic aluminum industry's tiered electricity price was classified according to the comprehensive AC power consumption of the molten aluminum. The classification standard was 13,650 kWh per ton. The kWh price increase is 0.01 yuan; the second is to cancel various forms of preferential electricity price policies in the electrolytic aluminum industry.

The use of clean energy to replace thermal power is one of the transition paths. At present, hydropower is relatively mature and can replace some thermal power aluminum production capacity. However, the volume of hydropower resources is limited and the output ceiling is relatively clear. The technologically developable hydropower resources in Sichuan and Yunnan have 120 million kilowatts and 90 million kilowatts respectively. The capacity of hydropower aluminum is only 11 million tons, and the room for growth is limited. In addition, there is a big difference in the power generation of hydropower during the dry and wet periods, and the hydropower aluminum production capacity is unstable. Therefore, other outlets must be considered and recycled aluminum will be on the stage.

Recycled aluminum is an aluminum product produced as raw materials from leftovers generated during aluminum processing or scrap aluminum (old scrap aluminum) recovered from scrap aluminum products. From the perspective of the proportion of recycled aluminum production in the total aluminum production, the proportion of recycled aluminum production in Japan in 2019 is close to 100%, the United States is close to 80%, and Europe is close to 60%, which is a relatively high level in the world.

According to the International Aluminum Association data (the latest), China's secondary aluminum production increased from 1.42 million tons in 2000 to 11.4 million tons in 2019, accounting for 35% of global secondary aluminum production, ranking first, with a compound growth rate of 11.6% , The industry develops rapidly. However, from the perspective of the proportion of secondary aluminum production, due to the faster growth of electrolytic aluminum production capacity, the proportion of secondary aluminum production continues to decline, accounting for about 24% in 2019, compared with the global average of 33%, China still has a lot of room for development.

Embrace high growth

European historical experience shows that the period of rapid growth of scrap aluminum is usually 15-20 years after the period of rapid GDP growth. The reason behind this is that scrap aluminum mainly comes from infrastructure, construction, automobiles, packaging and other fields. It is used during periods of high economic growth. The amount of aluminum is also higher.

2003-2012 is a period of rapid growth of China's GDP, and the average scrapping cycle of aluminum products in China is 15-18 years, which corresponds to a period of high scrap volume in China from 2018 to 2030.

At present, the concentration of the secondary aluminum industry is not high. The CR3 in 2020 is about 16.5%, which is a slight increase from 16.1% in 2019. At present, secondary aluminum enterprises and parks are gradually becoming large-scale and centralized, forming the Lizhong Group and Huajin Group, Xinge Group, Shunbo Alloy, Shuaiyichi Group and other group enterprises.

Lizhong Group currently has a production capacity of 1.2 million tons of cast aluminum alloy (primary + recycled) per year. The current domestic production capacity of primary + recycled cast aluminum alloy is about 9.5 million tons per year. The company's aluminum alloy ingot market share is about 13%. In 2020 The company's output of recycled cast aluminum alloy is 714,800 tons, of which the output of cast aluminum alloy using recycled aluminum as raw material is 432,000 tons. It is a leading domestic caster/recycled aluminum alloy enterprise. More importantly, Lizhong Group is the only company in the industry that ranges from R&D and manufacturing of aluminum alloy materials to wheel product design and manufacturing. Europe and the United States have become global sourcing suppliers for famous international car manufacturers such as GM and BMW, and have successfully entered the supply chain of overseas car companies such as Tesla and BMW, and domestic famous car companies such as Xiaopeng and Weilai.

Shunbo Alloy is a leading domestic secondary aluminum producer, and its scale ranks first in the country. In 2020, the company's secondary aluminum sales volume was 367,200 tons, and in the first half of 2021, the secondary aluminum sales volume reached 276,100 tons. The company's products are recycled aluminum alloy ingots, and the raw materials are mainly scrap aluminum. Because there is always a reasonable price difference between the price of scrap aluminum and other raw materials and the price of aluminum alloy ingots, the company's profitability depends on the price difference and processing costs.

Shunbo Alloy currently has four production bases in Chongqing, Guangdong, Jiangsu and Hubei, which can radiate major consumer markets in Southwest, South, East and Central China. In the first half of this year, the company's operating income in East China surpassed that in Southwest China for the first time, and the company's business regional layout is diversified. Shunbo Alloy will continue to expand its production area in the future. In July 2021, the company announced plans to issue convertible bonds to raise funds to build an Anhui 400,000 tons secondary aluminum project to meet the secondary aluminum demand in East China.

In July this year, the National Development and Reform Commission issued the '14th Five-Year Plan for Circular Economy Development', striving to achieve 11.5 million tons of domestic secondary aluminum production by 2025. Based on this, the average annual compound growth rate of domestic secondary aluminum production during the '14th Five-Year Plan' period is estimated To achieve more than 9%. With the advent of the domestic aluminum scrap cycle, the secondary aluminum industry will usher in rapid development, and investors can pay attention to related companies.