Can Cutting Production Solve the Overcapacity Problems in Alumina Industry?

A wave of alumina production that has been swept across the globe has shrouded the entire alumina industry in the shadow of overcapacity. It has also caused rapid overheating due to rapid expansion in recent years. It should be said that this is a weak international and domestic demand. In the background, the inevitable expansion of the company’s blindness.

Some industry insiders believe that the direct reason for this time of production cuts is the change in Indonesia’s bauxite export policy that has increased the cost of imported bauxite in China. However, the other major reason is that under the background of sluggish domestic demand, China has not yet stopped the pace of mad expansion.

It is reported that in the first half of 2007, due to the surge in new projects in some industries, five departments including the National Development and Reform Commission have issued special notices requiring all localities to fully clear newly started projects with more than 100 million yuan, while the alumina industry is one of the key clean-up industries. In the first half of 2008, due to overcapacity, alumina companies cut production, but they still cannot boost market prices. The direct impact of the surge in domestic alumina production is the reduction in alumina imports and the increase in imports of bauxite. When domestic resources are unable to support domestic demand, alumina production companies have continued to expand their production capacity but do not have sufficient raw material supply, resulting in a significant increase in import dependence, which has directly led to higher prices of imported bauxite and lower alumina prices. Under the double pressure, most factories are unbearably forced to cut production.

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In a few short years, the alumina industry has faced the problem of reducing production in the industry due to excess production capacity and falling prices. Perhaps this is because the price law plays a huge regulatory role and leads the unbalanced state of supply and demand of goods to balance again.

Overcapacity will inevitably have a very negative impact on the development of the industry. There are many reasons for the problem of overcapacity. First of all, the investment and financing system is not perfect. Enterprises ignore the market conditions and profitably blindly invest. Of course, there are soft constraints such as long-term low prices for land, energy, and manpower. Despite these force majeure constraints, companies can make an accurate assessment and prediction of the future supply and demand of commodities and their own competitiveness before making a decision on expansion. This can greatly reduce their own losses.

However, compared with overcapacity, sluggish demand has hit the profitability of the alumina industry even more. Reduction in production can only slow down the excess of alumina, but it is unable to recover the slump in alumina prices. Therefore, if only the hope of saving the market can be reduced, or fail. Repeated expansion and reduction of production in recent years are proofs.

However, relative to the reduction of production, boosting market demand is a difficult issue. The market is intricate, the impact of global economic forms, the development of related industries, etc. all affect the alumina market. The driving force for boosting market demand is more from macroeconomic policies and the degree of market economic prosperity. The development of alumina upstream and downstream and the firmness of aluminum prices also affect the alumina market. Therefore, as a company, the method of avoiding risks is to objectively and scientifically analyze the market situation, and it is not possible to blindly follow decisions that meet their own strength and market development. In this way, we can take the initiative in the ever-changing market.

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