Beijing pushes non-ferrous metal firms to merge but resistance seen

PUBLISHED : Tuesday, 12 May, 2009, 12:00am
UPDATED : Tuesday, 12 May, 2009, 12:00am
 

Beijing plans to speed up consolidation in the non-ferrous metals sector by encouraging mergers and acquisitions and hastening the closing of backward facilities, according to a revitalisation plan for the industry unveiled yesterday.

The long-awaited plan, a draft of which the State Council published in February, envisions three to five big multi-metal firms by 2011. By then, the top 10 firms would control 90 per cent of copper production, 70 per cent of aluminium, 60 per cent of lead and 60 per cent of zinc.

The State Council said it would eliminate this year 300,000 tonnes of outdated smelting capacity for copper, 600,000 tonnes for lead and 400,000 tonnes for zinc. Next year, it would cut 800,000 tonnes of aluminium. It would also restrict new projects in the sector to control overcapacity.

Those closures make up about 10 per cent of the nation's copper and zinc smelting capacities, 20 per cent of lead and 5 per cent of aluminium.

Industry experts said the document published yesterday was generally positive for the sector, which has been suffering from a drop in metal prices and demand during the global financial crisis.

However, they are sceptical about the implementation of the policies because of expected stiff resistance from the affected firms and local governments.

'The non-ferrous metals sector is one of the major contributors to local economies, including employment and tax revenue for local governments,' said Liao Luhai, an executive director at Hunan Nonferrous Metals Corp, the mainland's largest zinc producer. 'Local governments are reluctant to close such firms.'

The sector, which has more than 4,000 smelting firms, is highly fragmented. More than 80 per cent of the companies have annual capacity of less than 10,000 tonnes.

It would be tough to achieve the target as the revitalisation plan did not lay out compulsory measures to shut down backward facilities, Mr Liao said.

'The government has said it wanted to control the expansion of aluminium smelting capacity for seven to eight years, but the fact is that [aluminium] capacity has risen about fivefold during the period,' he said.

Even if the target was accomplished, its impact on the market supply would not be great because the overcapacity problem was severe, said Sabrina Xie Lulu, an analyst at Guotai Junan Securities.

For example, the capacity utilisation rate of Aluminum Corp of China, the mainland's top aluminium producer, was only about 70 per cent, Ms Xie said.

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