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The truth about China’s aluminium production

The truth about China’s aluminium production. Or why China even bothers, at that cost. Paul Adkins AZ China Ltd. China’s cost curve shows extent of the problem. Government subsidies count. Source: AZ China Red Book, Q3, 2012. The truth about China’s cost of production.

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The truth about China’s aluminium production

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  1. The truth about China’s aluminium production Or why China even bothers, at that cost. Paul Adkins AZ China Ltd

  2. China’s cost curve shows extent of the problem

  3. Government subsidies count Source: AZ China Red Book, Q3, 2012

  4. The truth about China’s cost of production • Sits in top quartile of global cost curve • Consumes scarce energy resources • Forced to import raw materials • Jeopardizes environmental integrity • Yet 10mt new capacity still to come Why on earth do the Chinese persist with making aluminium?

  5. First some simple reasons… Why they won’t import Why capacity can expand Relatively low barriers to entry Incentive to move down the cost curve Regional incentives, often tied to power • Promote domestic value-add • Financial penalty to import: Estimated US$60bn per year and growing • Jobs would be lost • Geopolitical risk But there is a Strategic Imperative…

  6. China in 2025 • Additional 350 million people move to cities • 221 cities > 1 million people (All Europe = 35) • 1 million kms new road • 28,000 kms of metro rail (much underground) • 170 mass transit systems • Double all Europe • 50,000 new skyscrapers (2 Chicagos per year) • 97 new airports • 1000MW new coal power capacity PER WEEK Source: Paul Braddick, ANZ, AZ China Research

  7. Don’t lose sight the big picture • As Westerners and as analysts and corporates, we focus on the markets, the industry, equities, P&L, capital flows, ROI, etc. • By doing so, we can miss the key point – for the Chinese Communist Party, aluminium is an important conduit for the development, urbanization and modernization of China. • China’s aluminium industry has been privatized only 1 generation.

  8. Thank youPaul AdkinsAZ China Ltd

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