1
Conditions of Aluminum Industry in 2004
Aluminum is an important metal because of many outstanding qualities including high
strength per weight unit, good conduction, lightness, stainlessness, ability to be easily formed
with many methods and recycled without quality changed. Therefore, it has been used as raw
material for important related industries such as construction industry, packaging industry and
electrical industry. It has good trend in the motor vehicle industry because of its good feature.
It is light with the proportion of 1/3 of iron weight, helping to save the energy and potential
pollution. It is also highly safe due to good absorb kinetic energy in case of car accidents that
the body made of aluminum would absorb the kinetic energy from the structure first, reducing
the damage in the passenger room. In addition, in other countries, inside the trailer truck, they
use aluminum as the body by 90% of the total body weight, reducing the weight by 1800
kilogram from the use of iron as truck body structure. This enables the truck to load more
weight without over road weight limit. However, aluminum is used only in expensive
passenger car. Several overseas companies are accelerating the development to use more
aluminum in motor car. In 2005, Hindalco Industries is cooperating with TATA Motors to
develop the aluminum structure for commercial cars especially aluminum structure for truck,
which is expected to be produced within year 2005.
Aluminum industry can be classified into 3 production types.
-
-
Primary production starts from bauxite extraction, which produces alumina refining to be
processed into the electrolysis or called primary smelting to produce the primary
aluminum. Four tons of bauxite can produce 2 tons of alumina, which will change to 1
ton of primary aluminum. Recycling the metal scrap to be re-melted can also produce
aluminum, which can be reproduced to be the original products (Same Application)
without down grade.
Intermediate production is metal rolling to be foil, extrusion, wire deep drawing, and
casting.
Final production is bringing the aluminum from the intermediate production to produce
the finished products for consumers.
Production cycle of aluminum is shown below.
1.
Aluminum conditions in global market
1.1.
Production
At present, the total primary aluminum production in global market is about 28 million
tons per year, coming from 120 aluminum smelteries worldwide. 7 million tons are from
recycle. Production volume and capacity can be shown in the table below.
2
Country
Production
Production Capacity
2003
2004
China
5.45
6.5
5.7
6.8
Russia
3.48
3.6
3.5
3.6
Canada
2.79
2.64
2.8
2.85
U.S.
2.7
2.5
4.14
4
Australia
1.86
1.88
1.85
1.88
Brazil
1.38
1.45
1.42
1.45
Norway
1.15
1.25
1.2
1.3
South Africa
0.7
0.82
0.7
0.85
Venezuela
0.6
0.6
0.64
0.64
Mozambique
0.43
0.51
0.44
0.54
Others
7.16
7.5
8.11
8.4
Total
27.7
29.25
30.5
32.3
Source:
U.S. Geological Survey, Mineral Commodity Summaries, January 2005
2003
1.1.1
2004
Aluminum production growth in global market classified by regions
Graph: Production growth classified by regions
Source : Macquarie Research, October 2004
Although there is an expectation for the declining growth of manufacturing sector as a
result of global economic slowdown, China remains the country having the highest growth in
aluminum production in global market. In North America, the production has declined due to
workers’ strike, which is expected to resume the production in quarter 1-2 of year 2005.
1.2
Demand for aluminum consumption in global market
Country/Demand
2004
China
6
European countries
6.4
U.S.
6.4
Asia
4.3
CIS countries
1
Others
3.3
Total
29.9
Source:
Macquarie Research, October 2004
Remark:
E = Estimate
2005 E
6.7
6.6
6.4
4.5
1
3.6
31.4
2006E
7.6
6.8
6.5
4.7
1.2
3.8
33.1
Graph: Demand for aluminum consumption classified by regions
Source:
Macquarie Research, October 2004
In 2004, the demand for aluminum consumption is higher due to demands of China and U.S.
Demand for global aluminum consumption in 2005 is expected to increase by 5% while the
production sector grows by 4%. Therefore, at the end of 2005, inventories would greatly
decline probably resulting in higher price of aluminum in London Metal Exchange market.
3
1.3
Aluminum and its application
1.
2.
3.
4.
5.
Transportation industry such as motor cars, trucks, ships, trains,
airplanes, constituting 26% of total aluminum consumption.
Packaging industry such as beverage can, aluminum foil used in
medicine and food industries, constituting 20% of total aluminum
consumption.
Construction industry such as window and door frames, bridge and
basic structures, heater equipment, constituting 20% of all aluminum
consumption.
Electrical industry such as transmission line, transmission tower,
constituting 9% of all aluminum consumption.
Others such as machinery, sport equipment, decorative furniture,
consumer goods such as refrigerator, television, washing machine,
constituting 25% of all aluminum consumption.
Aluminum Consumption
1.4
Main primary aluminum manufacturing countries
1.4.1
China
- Production: Primary aluminum has been produced most in the world (6
million tons) with the most demand in the world (about 6 million tons) as well. It is
also expected that aluminum production would exceed domestic demand in the next 12 years. As a result, China begins to export aluminum to the world market during such
period. However, after the year 2007, it is expected that consumption would exceed
production volume again and China would become the aluminum net importer.
- Resources: Source of bauxite is about 2.3 trillion tons, which is 2% of all
sources in the world. But the quality of bauxite texture is not good enough to smelt to
alumina. So, China needs to import alumina mainly from Australia and India. The
important primary aluminum production company is Chalco, which Chinese
government holds 72% of its share.
- Consumption
Aluminum consumption rate increases by 14% in 1998-2001. When compared
with the world in the same period (excluding China), it is 3.9% from the growth of
construction and motor vehicle industries, and electrical energy production, which is
highly demanded continuously. China, at present, has higher growth of basic
industries (Metal Intensive), as compared with Japan in 1947 or Korea in 1957 but the
size is much larger. More than 80% of aluminum consumption in China is used in the
construction business. Recently, demand might be rapidly higher due to Olympic 2008
construction project. Projects under the construction are 42 race fields and 50 hotels,
etc. In the developed countries, aluminum application in construction industry has
4
only 30%, whereas another 70% has been used in other industries. To achieve this,
China might have to take no less than 30-40 years, at least. At present, China
consumes 2-3 kilograms of aluminum per person and compared with the U.S., which
consumes 35 kilograms/person. It can be seen that the trend of consumption demand
for aluminum in China remains high.
- Affecting Factors
- There is a problem of electrical energy shortage in the west and south of the
country. Such areas have the production of primary aluminum in half of all production
capacity. China has expedited the problem-solving and it is expected to succeed in
2011.
- According to China’s access to WTO, China tries to close the pure aluminum
smelters with pollution problem. These factories have the total production capacity of
450,000 tons. The factories with the production capacity of less than 50,000 tons will
be closed down because of their ineffective productions, and most of them are old
factories and use technology causing more pollution. In addition, there are problems
of electrical energy shortage and source of alumina raw material that need to be
imported from abroad. Moreover, the Chinese government has used a measure to
restrict alumina import to decelerate the rapid expansion of primary aluminum
production to prevent over production capacity problem. Therefore, it seems far from
possibility that China would become the exporting country of aluminum and affect the
global market like Russia did in the past (in 1992). At present, China uses tax measure
to restrict aluminum export at 5% and, in October 2004, Ministry of Commerce of
China announced the restriction for aluminum smeltery with the production capacity
of less than 100,000 kilograms/year. It prohibited the direct import of alumina raw
materials, which have to import through large smeltery. This would increase the
production cost of small aluminum smeltery. As a result, China’s export might not
change much from last year to maintain the balance of demand for domestic aluminum
consumption and alleviate the problem of electrical energy shortage in the country.
1.4.2. United States of America
- Production and Import – Export can be shown in the table below.
Production
2003 (1,000 tons)
2004 (1,000 tons)
Primary Aluminum
2,700
2,500
Secondary Aluminum
1,070
1,200
Import
4,130
4,300
Canada (58%), Russia (18%)
Export
1,540
1,700
Canada (51%), Mexico (20%),
China (16%)
Source : U.S. Geological Survey, Mineral Commodity Summaries, January 2005
- Domestic Consumption: total 6.5 million tons, classified as follows.
2004 (100%)
Transportation
35%
Packaging
24%
Building
16%
Consumer durables
8%
Electrical
7%
Others
10%
5
2.
Situation of Aluminum in Thailand
In Thailand, there are 3 production processes. However, in the basic production, there
is only melting the aluminum from metal scrap, which is Secondary Aluminum. There is no
primary aluminum production because of shortage of bauxite raw material sources and high
electricity expenses in the country, which is not worth commercially investing.
2.1
Production
Aluminum industry in Thailand can be classified into 3 groups based on production
process.
1)
Primary producers - factories purchase metal scrap and aluminum waste as raw
materials for re-melting to be unwrought or wrought aluminum then casting, according to the
needs of related industries.
2)
Intermediate producers - can be divided into 2 groups that are extrusion factory
and aluminum sheet factory, such as aluminum sheet and foil producers, cut-off string
aluminum, electrical wire producers, casting and die casting factories.
3)
Final producers - producers who purchase and use the aluminum sheet as raw
materials to produce consumer products. The examples are beverage can and packaging
producers, container producers, building decorative item, banners etc.
2.1.1
Problem of Production
Problem is a lack of upstream industry that is the production of primary aluminum, so
Thailand needs to rely on import of semi-finished raw materials (unwrought aluminum) and
re-melting the aluminum scrap and waste (secondary aluminum). However, the quality of
aluminum obtained from re-melting the aluminum scrap is not quite purified because of no
electrical sorting process to make it more purified.
The campaign of aluminum storage for recycle has not been successful. Primary
producers, which are smelteries, are still facing the shortage of raw materials that are
insufficient aluminum scrap. Therefore, import from abroad is needed even though the
domestic circulation quantity is about 100,000 tons per year, which can substitute to some
extent. The wrought aluminum factories, such as rolling, pressing, extrusion factories,
foundry etc., will always leave metal scrap. Most of these factories do not have their own
furnaces, so they will sell metal scraps by auction to metal scrap dealers or smelteries or make
the contract with aluminum raw material suppliers to resell them to be re-melted. Aluminum
scrap from this industrial factory has good quality (New Scrap). Due to no systematic storage
of old scrap and high price of aluminum scrap in overseas, the aluminum scrap is
continuously exported every year.
6
2.2
Foreign Market
Import
Table 1: Comparison of aluminum import quantity in 2003 and 2004
QTY: Metric Ton, VALUE: Million Baht
Products
2002
QTY
2003
QTY
2004
Scrap
17,602
VALU
E
890
22,364
VALU
E
1,158
QTY
31,177
VALU
E
1,767
Unwrought
259,323
16,343
330,317
20,128
417,669
Powders &
Flakes
671
62
864
78
Bars, Rods,
Profiles
2,615
359
4,278
Wire
2,741
314
Plates, Sheet,
Strip
Foil
61,025
% Changing rate
QTY
VALUE
39.4
52.5
28,091
26.4
39.5
1,021
75
18.7
-3
575
4,140
679
-3
18
2,634
311
3,258
366
23.7
17.7
6,805
70,755
7,804
80,948
9,354
14.4
19.9
21,685
3,693
26,570
4,290
33,274
5,492
25.2
28
Tubes, Pipes,
Fittings
Structures
2,160
743
2,391
890
3,090
1,102
29.3
23.8
NA
262
NA
231
NA
494
-
114
Container,
packaging
Household
articles and
Sanitary ware
others
NA
612
NA
787
NA
829
-
5.3
NA
75
NA
74
NA
128
-
73
NA
9,456
NA
11,571
NA
11,222
-
-3
Total
367,822
39,614
460,173
47,897
574,577
59,599
24.8
24.4
Source:
Important
source of
import
Singapore,
U.S., UK
Australia,
UAE, Russia
Germany,
Austria,
China, Japan
Japan,
Indonesia,
Bahrain,
China
France,
Netherlands
Japan, Korea,
Australia
Japan, Korea,
Malaysia
Japan, Malaysia,
South Korea
China,
Malaysia, South
Korea,
Indonesia
France, Italy,
Denmark
Taiwan, South
Korea, China
Japan, China,
Singapore
Japan,
Australia,
China
1. Industrial Economics Information Center, Office of Industrial Economics
2. The Customs Department
From the aluminum import quantity table in 2004, compared with 2003, the overall
import has increased in all categories. The most imported product is unwrought aluminum
with the import value of 28,091 million baht from the total import value of 59,599 million
baht or 47% of total import value. Thailand’s main aluminum import markets are Japan,
Australia and China respectively, unchanged from year 2003.
7
Export
Table 2: Comparison of aluminum export quantity in 2003 and 2004
QTY: Metric Ton, VALUE: Million Baht
2002
Products
2003
2004
% Changing rate
QTY
VALUE
QTY
VALUE
QTY
VALUE
QTY
VALUE
Scrap
15,320
708
17,560
737
20,662
944
17.6
28
Unwrought
Powders & Flakes
Bars, Rods, Profiles
9,674
11
13,949
586
2
1,020
6,905
143
17,052
452
10
1,224
12,312
161
22,488
902
12
1,746
78.3
12.6
31.9
99.5
20
42.6
Wire
167
11
149
11
347
14
132.8
27.3
Plates, Sheet, Strip
3,870
372
7,612
664
9,926
1,022
30.4
54
Foil
2,320
341
2,321
346
3,526
544
52
57.2
Tubes, Pipes, Fittings
1,764
458
2,342
533
2,808
665
19.9
24.7
Structures
Container, packaging
NA
NA
5,406
1,478
NA
NA
6,873
1,439
NA
NA
9,125
1,887
-
32.7
31.1
Household articles
and Sanitary ware
Others
NA
4,284
NA
3,706
NA
4,001
-
7.9
NA
1,864
NA
1,635
NA
3,042
-
86
47,075
16,530
54,084
17,630
72,230
23,904
33.5
35.6
Total
Source:
Important
source of
export
Japan, South
Korea, China
Indonesia
U.S., Australia
Hong Kong,
India, Vietnam,
Australia
Burma,
Singapore,
Vietnam
Japan,
Malaysia
Malaysia,
Philippines,
Indonesia
Malaysia,
Indonesia, UK
Japan
Malaysia,
Japan
U.S.
Japan,
Netherlands,
Hong Kong,
Philippines
Japan, U.S.,
Malaysia
1. Industrial Economics Information Center, Office of Industrial Economics
2. The Customs Department
From the aluminum export quantity table, the overall export has increased from 2003
by 35.6% with the total export value in 2004 of 23,904 million baht. Thailand’s main export
markets are Japan, U.S. and Malaysia.
3.
Summary
Aluminum industry in the country continues to grow continually as seen from the
import quantity and value of aluminum, which tends to increase continually. It indicates that
this industry grows favorably as a result of high consumption demand of related industries
such as construction industry, packaging industry, electrical appliance industry that has
increased production including rice cooker, television, refrigerator, washing machine.
However, if considered the product export statistics of quantity and value figures, it might not
be able to show that to what extent the aluminum industry has grown because aluminum has
been used as raw materials to produce the finished products for related industries and will be
tax-imposed by customs code based on such industries. Therefore, it can be said that the
growth of aluminum industry depends on the related industries that use aluminum as raw
8
materials. When looking at the trend of consumption quantity of aluminum products in related
industries, it still grows favorably in conjunction with national economy in the next 1-3 years
which is expected to grow well also. Therefore, the domestic entrepreneurs have to quickly
develop the product quality to add value in their products and adopt various management
principles to enhance production performance and reduce the costs. The principles of Total
Quality Management, Cleaner Production, and Lean Manufacturing, etc., can be applied in
the factories for continual improvement of competitiveness. However, if domestic
entrepreneurs do not develop product quality, the market might be shared by imported
products. Therefore, domestic entrepreneurs need to accelerate the development of product
quality and standard continually to maintain the existing markets and, at the same time, the
new markets.
As Thailand does not have domestic upstream industry, raw materials need to be
continually imported from abroad to process into semi-finished or finished products for
consumers. When considered basic raw material imports of aluminum, namely unwrought
aluminum, it has import value at 47% of total import value or 28,091 million baht from
59,599 million baht. Therefore, searching for alliance or world class supplier/partnering to
secure supply in ordering more raw materials is the main issue for domestic entrepreneurs to
consider, as in the future the competition will not be in one particular region but will spread
all over the world. As for the smelteries that smelt aluminum scrap or dross to be ingot
aluminum (secondary aluminum), they still need to continually develop the production
techniques to enhance performance and reduce environmental problems with lower cost to
satisfy the potential customers’ needs for higher quality and standard.
Thai entrepreneurs should quickly develop the substitution for import of aluminum
sheet and foil, which can be domestically produced, but imported with higher quantity and
value every year. In 2004, import value of aluminum sheet is 9,354 million baht, increasing
from 2003 by 19.9% and from 2002 by 37.45%. Import value of aluminum foil in 2004 is
5,492 million baht, increasing from 2003 by 28% and from 2002 by 48.7%. Both products
tended to be imported more because they are raw materials for domestic consumer goods and
exported products with good growth trend in line with the national economic conditions. Such
products are air-conditioner, refrigerator, container, beverage, food and medicine. However,
aluminum sheet and foil products used as raw materials of such mentioned consumer goods
are very competitive as seen from their import quantity and value. Thai producers of
aluminum sheet and foil need to import primary raw materials from abroad and then roll or
form them. This might be affected by exchange rate and fluctuating price of aluminum in
global market. Therefore, aluminum sheet and foil producers should quickly develop quality
and build up customer driven linkage to be accepted as one of the most appropriate
alternatives for them.
4.
Recommended Measures for the Government
4.1
Establishment of recycle center is to develop the effective full-cycle waste
management and reduce waste quantity for the environmental benefit. This can be done by
appropriate disposal, sorting the unused wastes by type, which some types of wastes can be
recycled.
Collect  Reuse  Recycle  Disposal
Aluminum scrap is an important raw material for aluminum production. In 2004,
Thailand imported 31,177 metric tons of aluminum scrap, increasing by 39.4% compared
with 2003. Its export is still high at 20,662 metric tons, increasing by 17.6% from 2003 in
9
spite of insufficient domestic use. Exported scraps can be divided into 2 types that are new
scrap and old scrap. Scrap outputs from this production have good quality with high price and
demand, which most finished aluminum producing companies will export to raw material
producers according to their agreements. However, the ban control for export of aluminum
might be difficult to implement. Incentive measures and cooperation establishment among
producers would be more appropriate than forcing measures of the government. Therefore,
systematic aluminum scrap collection might be an alternative to reduce the shortage of
aluminum scrap to some extent and reduce its import quantity from abroad. Besides,
campaign for knowledge and reinforcement of waste sorting should be made especially used
aluminum scraps, such as beverage can, decorative equipment, electrical appliance parts,
window frame, etc., because all of them can be recycled. For example, at present, some
factories and schools have collected used aluminum beverage cans and the purchasers come
to buy them on site each month. These factories or schools can earn income from used
aluminum scraps, which rewards them as incentives and helps conserve the environment.
Another example is in the golf course where there are a number of aluminum beverage cans
each day, which can be additional income for golf caddy who collects and sells used beverage
cans to the dealer and receives immediate cash, influencing them to collect more, etc.
4.2
Consideration on Packaging Tax Collection
Aluminum scrap has high value when compared with other material scraps that
have not been all recycled and it is highly demanded by industrial factories. From the survey
of aluminum scrap in piles of wastes in many areas in Thailand, it is found that there is less
scrap remained. This shows high demand for aluminum scrap in the country. The sorting of
solid waste of aluminum might not be right but it is probably higher value product than solid
wastes. Therefore, aluminum package tax collection or tax of other products should be
considered with the effect on the whole Life Cycle Assessment (LCA) of aluminum products.
Recycle rate of aluminum and aluminum package, and pollution to the environment caused by
aluminum products are necessary issues to be considered prior to tax measure
implementation.
4.3
Enhancement of Competitiveness of Aluminum Industry
As mentioned above, Thailand does not have upstream industry due to shortage of raw
material source and limitation on electrical energy cost. Therefore, development of products
that can be produced domestically and value added acceleration to expand into overseas
markets should be promoted. Also, the promotion should be made for potential products that
can substitute for long-term import. This can be done by considering the use of Local Content
in appropriate amount by applying incentive measures such as tax incentive or others.
Entrepreneurs should quickly establish a network for the whole system of industries including
producers and users.
4.4
FTA Consideration
Tax consideration under the FTA should be made with the competitive productivity of
domestic entrepreneurs and the main benefits of producers, users and trading partners in each
product because tax reduction, in some cases, would give the opportunity to the same
products from abroad to compete with domestic entrepreneurs rather than support the market
expansion. Therefore, the study of impact from tax measures needs to be conducted carefully.
However, the FTA consideration regarding aluminum products should be made in the
following scopes.
1.
2.
Production procedure and technology of the trading partners
Production capacity, good quality aluminum production capacity
10
3.
4.
5.
6.
7.
8.
9.
5.
Structure of production cost
The whole tax structure of products
Import – export quantity with trading partners
Product control standards
Domestic and abroad consumptions and future trend
Production capacity and domestic entrepreneurs’ production plan
Demand of related industries
Trend
As for 2005, aluminum industry is expected to continuously grow, particularly sheet
and foil products, structure aluminum and parts used in construction business including
unwrought aluminum products, which are raw materials for related industries such as
consumer goods, packaging, beverage and food. They have good growth trend in line with the
national economy that is expected to further grow well. However, price of primary aluminum
tends to increase continuously as a result of huge decrease of inventories in London Metal
Exchange (LME).
---------------------------------------------------------------------------------------------Mr. Danuruj Winmun
Industrial Sector 2, Sectoral Industry Policy Bureau 1
Office of Industrial Economics
April 2005