**Abstract**
Due to a challenging market environment and high electricity prices, Henan's electrolytic aluminum industry is facing severe survival challenges. Additionally, the slow progress of industrial integration and the national "westward" strategy for the aluminum industry are further complicating its development. Once a proud pillar of the region’s economy, the Henan aluminum sector is now under significant pressure from multiple fronts.
On July 13, Shenhuo shares (4.81, -0.06, -1.23%) released its half-year results forecast, revealing that key business segments like coal and aluminum saw a year-on-year decline of 57.14% to 59.04%. Just two days later, on July 15, Polyfluoride (12.01, 0.29, 2.47%), which holds over 20% of the domestic aluminum fluoride market, announced the shutdown of its aluminum fluoride production line for two months, potentially reducing main business revenue by as much as 100 million yuan.
Meanwhile, on June 28, Zhongfu Industrial (3.62, -0.01, -0.28%) received approval from the China Securities Regulatory Commission for its private placement plan, aiming to raise 2 billion yuan. The funds will be used to repay debt and supplement working capital, highlighting the financial strain on the sector.
The cumulative impact of these events has pushed many aluminum producers in Henan into a precarious situation. What makes things worse is that the industry isn't just dealing with current challenges but also long-term pressures from the national policy of shifting aluminum production westward, where electricity costs are significantly lower.
In the short term, Henan remains one of China’s leading electrolytic aluminum provinces, accounting for about a quarter of the country’s total production capacity and once holding the top position for over a decade. It also boasted advanced technology, energy efficiency, and innovation. However, even with such advantages, the industry has struggled due to weak demand, overcapacity, and high electricity prices.
Liu Libin, Executive Vice President of the Henan Nonferrous Metals Association, explained that high electricity costs are a major factor behind the losses in the industry. For instance, while Shandong’s industrial electricity price is 0.439 yuan per kWh, Henan’s net rate is 0.64 yuan per kWh. At the current aluminum price of 14,300 yuan per ton, this difference adds an extra 2,800 yuan per ton for Henan-based companies. Even with self-generated power, the cost is still 6 cents higher than in other provinces, resulting in an additional 800 yuan per ton in electricity expenses.
Analysts like Wu Zhuozhuo from BOC Securities believe that the aluminum industry is unlikely to rebound in the second half of the year due to broader economic conditions.
To survive, transformation is essential. Some experts argue that the lack of industrial chain optimization is a key issue. Linfeng Aluminum, a subsidiary of Henan Zhongfu Industrial, has developed a low-temperature, low-voltage aluminum electrolysis technology that reduces DC power consumption by 10.7%, offering a potential path forward if widely adopted.
However, the initial investment required for such technologies remains high, and Henan authorities are currently evaluating the feasibility of large-scale implementation.
Liu Libin emphasized that increasing self-generation capacity is crucial for Henan’s aluminum industry to break free from its difficulties. He also called for government support to help existing enterprises upgrade and expand their operations.
Another proposed solution is the integrated development of “coal, electricity, aluminum, and processing.†By acquiring coal-fired power plants and building self-supplied units, companies could reduce costs and compete more effectively. In 2012, Henan introduced a “difference plan†to support key electrolytic aluminum enterprises through tax rebates and delayed electricity payments.
Beyond cost-cutting, the industry must also move toward high-value-added products. Liu noted that Henan lacks manufacturers capable of producing materials used in high-speed rail and aircraft, which require precision processing. He pointed out that in 2012, the middle of the industrial chain lost 3.3 billion yuan, while high-end aluminum products at the ends generated 5.2 billion yuan—highlighting the need for future development in premium products.
Looking ahead, the national shift of aluminum production to the west, particularly to Xinjiang, poses a growing threat. Many Henan companies are investing in power plants there, such as Shenhuo’s 4*350,000 kW power plant project, expected to be completed by the end of 2013. This would help them establish a full “coal, electricity, and aluminum†chain and better manage production capacity.
Despite the challenges, some analysts remain cautiously optimistic. While Xinjiang offers lower coal prices, transportation costs may offset some of its advantages. Experts suggest that Henan should focus on integrating its aluminum industry and developing mid-end consumer enterprises to absorb excess production over time.
In conclusion, the Henan aluminum industry is at a crossroads, facing both immediate survival challenges and long-term structural shifts. Whether it can adapt and thrive depends on innovation, integration, and strategic planning.
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