Prisoner's dilemma behind the hottest production r

Where should the "prisoner's dilemma" electrolytic aluminum industry go behind the production reduction

according to SMM, Chalco will invite many domestic enterprises to hold a meeting on versarien's acquisition of 2D expert company in 2014 on December 21 to jointly discuss the problems faced by the aluminum industry in 2018 and put forward relevant measures. In addition, due to the recent large-scale losses of aluminum plants, the market is very concerned about whether the enterprises at this meeting will put forward self-help measures such as joint production reduction and storage, but it has not been confirmed by relevant enterprises at present

on December 21, 2018, China Nonferrous Metals Industry Association held a symposium for some key electrolytic aluminum enterprises in Nanning, Guangxi, to discuss the current situation of alumina and electrolytic aluminum industry at home and abroad, and the development trend of aluminum consumption in the future. 20 backbone electrolytic aluminum enterprises including Chinalco group, China Hongqiao, Xinfa group, Hangzhou Jinjiang Group and Oriental hope attended the symposium. Experts from Beijing Antaike Information Co., Ltd. were invited to make a research report on the aluminum market

participants reported that the current domestic aluminum price has hit the industry's average cash cost line, and the operating pressure of enterprises is close to the limit, even exceeding the worst level in the fourth quarter of 2015. Since the second quarter, some enterprises have begun to take flexible production measures, especially in the second half of the year, the scale of production reduction has further expanded. It is estimated that up to now, the shutdown capacity of electrolytic aluminum in China has exceeded 3.2 million tons/year, of which about 80% are concentrated in the second half of the year. The scale of domestic planned shutdown may exceed 800000 tons/year in the future

the participating enterprises are full of confidence in the steady and positive growth of China's economy in 2019, and are firmly optimistic about the prospect of China's aluminum consumption. In order to ensure the stable and healthy operation of the industry, the participants put forward suggestions on adjusting the import and export policies of electrolytic aluminum, continuously expanding the application of aluminum, and creating a fair and reasonable financial credit environment

however, is there any substantial improvement in the aluminum market due to the efforts of aluminum enterprises to reduce production

similar year by year

first make a historical review:

1994: the memorandum of aluminum production reduction in 1994 is a special phenomenon. It is an intergovernmental agreement signed in response to the historical high level of global aluminum inventory, allowing global aluminum manufacturers to reduce production in a coordinated manner to tide over the difficulties. Australia, Canada, the European Union, Norway, the Russian Federation and the United States have all signed the agreement. At that time, these countries were the world's major aluminum producers, while China had not yet entered the stage of rapid capacity expansion

Russia promised to reduce its annual output by 500000 tons on the spot, but there was no quota limit or implementation mechanism for other countries. The signatory countries only "think that coping is a principled response to the situation, which should allow enterprises to make business decisions independently according to the market conditions."

most aluminum producers have adopted the same "commercial" decision, announcing production reduction plans one after another. The signing of the memorandum on aluminum production reduction in 1994 had a special background: at that time, the collapse of the Soviet Union coincided with the collapse of its huge military supplies industry, which had been a big buyer of Russian Aluminum before. The surge in Russian aluminum exports is the real "incentive" for the signing of the memorandum. The fear of more frequent multilateral trade disputes in the future is an important factor for senior trade officials and competition authorities to agree to sign

2005: at the Symposium of some backbone electrolytic aluminum enterprises in Beijing on December 1, 23 backbone electrolytic aluminum production enterprises in China will jointly reduce production by 10% in the near future

2008: on July 10, China Nonferrous Metals Industry Association organized a symposium on market analysis of some backbone electrolytic aluminum enterprises in Yantai, Shandong Province. 20 backbone electrolytic aluminum enterprises from all over the country participated in the symposium. All the representatives of the meeting passed the "proposal" of joint production reduction of electrolytic aluminum enterprises, and promised to gradually achieve the target of% production reduction within one month from now on, and the duration of production reduction is not determined

2010: in early June, at a meeting convened by Henan Nonferrous Metals Association, the heads of 13 electrolytic aluminum enterprises in Henan agreed to actively reduce the production capacity by eliminating backwardness, reducing the current intensity of the electrolytic cell, arranging a part of the electrolytic cell overhaul in advance, delaying the start-up of the heavily repaired electrolytic cell, arranging a part of the electrolytic cell for energy-saving technical transformation and other methods from late June, with a total reduction of 700000 tons. According to Aladdin, an industry research institution, the latest total production capacity reduction in Henan is about 380000 tons, while the nationwide production reduction has exceeded 500000 tons

2013: on April 10, the leaders in the industry rushed to Beijing from all over the country to attend the meeting in a low-key manner. One of the main contents discussed by all parties was the joint production reduction. However, considering the shutdown costs and local pressure, the parties did not reach an agreement on reducing production

China Nonferrous Metals Industry Association disclosed that the loss of China's electrolytic aluminum industry in 2012 has reached 93%. According to the recently disclosed annual report, aluminum companies such as Chinalco, Zhongfu industry (600595, Guba), changaluminum (002160, Guba) and dongyangguang aluminum all suffered losses or sharp declines in profits last year

it is reported that on May 29, the China Nonferrous Metals Industry Association organized a symposium of 15 domestic backbone electrolytic aluminum enterprises, and initially reached a joint production reduction plan of 1million tons. On the day of the trip, A-share aluminum giant Chinalco () announced that according to the current market conditions and the principle of maximizing benefits, the company decided to implement flexible production on some electrolytic aluminum production lines from the date of the announcement, involving the temporary shutdown of electrolytic aluminum production capacity of about 380000 tons

up to now, in addition to Chinalco, Yunnan Aluminum's plan to reduce production by 150000 tons has also been implemented. At the same time, Xinheng and Zhongfu aluminum enterprises also plan to reduce production by 120000 tons and 50000 tons respectively. As early as this month, domestic aluminum enterprises have also reduced production by nearly 1million tons. 2015: on December 1, 23 domestic key enterprises of household appliance aluminum melting collectively announced in Beijing that they would take the initiative to reduce production by 10% to cope with the current high alumina price

but who knows, on the day after the electrolytic aluminum enterprise announced the reduction of production, Chinalco announced that it would increase the price of alumina by 540 yuan per ton, from 4660 yuan to 5200 yuan at a time, which means that the cost of electrolytic aluminum enterprises per ton of aluminum ingots immediately increased by about 1000 yuan, which not only compensated all the profits from the increase in the price of aluminum ingots, but also upside down for some enterprises. Good news and bad news came one after another in less than 24 hours, and many enterprises immediately pointed the spearhead at Chinalco, believing that it was rushing to eat a profiteering dinner

according to wall street news on November 19: the problem of oversupply in the international aluminum market has been very serious. In order to balance market supply and demand, China and Russia decided to cooperate to reduce production. Rusal said on Tuesday that it plans to decide which aluminum plants to suspend operations in mid December, and the company plans to cut aluminum production by up to 200000 tons

2016: in January, 6 enterprises including Chinalco, state power investment, Weiqiao aluminum, Yunnan Aluminum, Jiuquan Iron and steel and Jinjiang agreed to establish a joint venture to undertake the task of electrolytic aluminum commercial storage. According to the previous plan, six enterprises agreed that the commercial purchase and storage will be carried out in two batches, and the first purchase and storage will be carried out in February, with a scale of 1million tons. The time and scale of the second batch will be arranged separately

2016: on Monday (June 13), the Metal Bulletin journals quoted informed sources to report that six large Chinese aluminum producers reached an agreement at the meeting on Monday that if the aluminum price on the Shanghai Futures Exchange fell to 11500 yuan per ton, the above-mentioned manufacturers would jointly reduce production

why joint production reduction

from the perspective of economics, in the short term, when the industry profit tends to zero, it will not lead relevant enterprises to reduce production. As long as the price of the product is greater than the short-term variable cost price, that is, the cash flow is positive and the profit is negative, the enterprise will continue to produce; Only when the price of the product is less than the short-term variable cost price, the enterprise will stop production. In the long run, enterprises will enter the industry only when there are excess profits in the industry; When the expansion of production capacity reaches a long-term equilibrium, that is, the profit is zero, and the number of enterprises remains unchanged; When the industry suffered losses, some high-cost enterprises began to stop production; If losses persist for a long time, some enterprises may withdraw from this industry. This is the problem of production reduction, which has the following three general laws

the economic principles mentioned above can be said to be performed repeatedly and brilliantly in the electrolytic aluminum industry. For example, recently, the production capacity of high-cost regions in Henan, Gansu, Qinghai and other places has been discontinued; Another example is that some enterprises in Henan, Hebei, Hunan and other places completely quit electrolytic aluminum enterprises

what is the law of joint production reduction in Aluminum City

1. The frequency of joint production reduction in aluminum city is higher than that of other metals. The main reason is the dynamic change of electrolytic aluminum cost. Although the power cost is relatively rigid, the alumina oligopoly and the price change lags behind the electrolytic aluminum cycle (whether it is the speculation of futures or the activity of spot trading), resulting in the alumina profit cycle lagging behind the electrolytic aluminum profit cycle. With the increase of industry concentration, the joint production reduction will be regarded as a normal situation in the future. Because this is in line with the direction of capital's pursuit of profit maximization

2. The joint action of electrolytic aluminum has shown high incidence in recent years, mainly because the profit fluctuation of electrolytic aluminum has intensified, and the fundamental reason is that the expansion speed of electrolytic aluminum is greater than that of alumina

3. The intensity of loss is not the key factor leading to joint production reduction, that is to say, industry losses do not necessarily lead to production reduction, which depends on industry concentration in the long run

4. Joint production reduction often exists with the phenomenon of high inventory. However, this does not mean all. Low inventory may also occur, often in the process of rapid inventory accumulation

5. Joint production reduction does not necessarily occur in the process of price decline, but also in the process of price rise. It depends on profit and cash flow. This is mainly because the costs of different enterprises are at different levels, resulting in the joint production reduction of the industry, which often lags behind the average profit of the market

6. The price may not rise after the announcement of joint production reduction. It can be said that the probability is not

7. The announcement of joint production reduction does not necessarily lead to profit recovery, but the probability is

8. Electrolytic aluminum enterprises are more and more tolerant of losses. The main reason is that the industry structure has undergone profound changes. First, the proportion of low cost is higher and higher, the cost gap between enterprises is larger and larger, and the gradient effect has taken shape; Second, the industrial chain integration effect, profit contribution may come from other links. For example, electrolytic aluminum lost money, but alumina made a big profit, or downstream processing made a big profit, which made up for or even enhanced the profitability of the enterprise

9. The loss of the industry may lead to an increase in the output reduction and withdrawal of enterprises (mainly marginal enterprises, for example, there is no group resource advantage, whether it is downstream resources or power, which is more prominent, such as Qinghai, Henan and other places), which is also the only effective way to clear the industry

10. Generally speaking, after the joint production reduction is announced, the production reduction lasts for a short time (excluding the cyclical special circumstances of 09 and 15 years, the longest is 5 months, generally 2 months), mainly due to the joint statement of electrolytic aluminum enterprises (even if there is no result, the gathering of backbone enterprises is a kind of