On the 14th of this month, the chief executive of China Hongqiao Group, the world’s largest aluminum producer, said his company would raise annual capacity by 16% this year, spending 15 billion yuan ($2.3 billion). Zhang Bo’s announcement sent prices of the metal tumbling.
Last year, Hongqiao’s capacity hit 5.2 million tons. This year, the plan is to take that to just a few notches over 6.0 million.
There is already far too much aluminum capacity, both in China and elsewhere, and investors initially did not like Hongqiao’s debt-fueled plan. Shares of the Hong Kong-listed firm fell the following day.
The stock, however, has since recovered and is now up 3.5% since the announcement, which shook the already troubled aluminum industry.
Shandong-based Hongqiao is on a roll. It increased output 40.0% last year to overtake Rusal for the global aluminum crown. This year, it is making sure the Moscow-based producer does not take back the top spot.
Hongqiao thinks its expansion plan makes sense because it can lower costs. And it is not alone in this assessment. “Ultimately Hongqiao is taking market share from other producers, as they are one of the lowest-cost producers in China and globally,” says Daniel Kang, a JPMorgan Chase analyst, to Aluminum Insider, a news site dedicated to the industry.
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