China Zhongwang Vincent CheungChina Zhongwang Holdings (1333), the world’s second largest aluminum producer and the biggest aluminum producer in Asia and China, saw its profit for the first quarter of 2012 soar 198% year-on-year to RMB491 million. During the period, gross profit margin and average selling price per ton were 25.8% and RMB24,665 respectively, painting a glistening future development picture for investors. Vincent Cheung, Chief Financial Officer of China Zhongwang Holdings, said when he was interviewed by our website that the three major profit drivers for the group in the future are, namely, industrial aluminum, aluminum after deep processing, and high-end aluminum rolling material. That means aluminum for construction use, which has a low value-added value, will not be a spotlight for the group. As aluminum sparkles and steel loses shine, which is an inevitable scenario, a diversified aluminum production business would enable the group to step on a higher stage, he said.

China Zhongwang, which had started its business with producing aluminum for construction use, planned for a business transformation as early as 2002. Cheung frankly admitted that the group had largely reduced the proportion of contribution from aluminum for construction use since 2003. The group made industrial aluminum more important to and a core part of their business. Now, aluminum for construction use only constitutes 5% of the group’s business while income from industrial aluminum accounts for nearly 94% of the group’s overall revenue. The shift of business focus explains why for many years the group’s revenue was not affected by volatility in Mainland China’s property market. There are more than 600 Chinese firms undertaking the production of aluminum for construction use, Zhang said, adding they do not possess high level of technology and face fierce market competition, which directly drag down gross profit margin for aluminum for construction use. Aluminum alloys for construction use are rather simple composites while the cross-section size of aluminum for construction use is relatively small, according to Zhang. That means aluminum for construction use would generate limited revenue only and therefore management of the group cannot stick to its starting-up product forever, Zhang added.

Currently, the group possesses 79 aluminum production lines and a 125 mn hydraulic double-acting aluminum extrusion machine. Production capacity of industrial aluminum is around 800,000 tons at present and will reach 1 million tons at the end of 2012. In 2011, the group added four large-scale extrusion machines to its production unit as written down on the development blueprint. The group is going to add eleven 75 mn hydraulic double-acting aluminum extrusion machines and three 125 mn hydraulic double-acting aluminum extrusion machines this year as well. Besides developing industrial aluminum with large cross-section area, management of the group has begun developing intermediate products as a result of deep processing of aluminum, which has a gross profit margin as high as 50%. This brand new product type is not affected by the anti-dumping policy suddenly adopted by the United States. For many years, the management of China Zhongwang have been bullish towards the prospect of aluminum processing market in Mainland China. They believe such market would grow by more than 12% in 2012 and predicts the full-year demand would exceed 4 million tons. Zhang said the aluminum deep processing business, which helps lift profitability of the group, is an extension of industrial aluminum business, adding the customers of aluminum deep processing business also come from industries like transport and communications, machinery equipment, and power engineering.

China Zhongwang is determined to put more resources into developing high-end aluminum rolling material production business in order to gather new growth momentum. In fact, the outer casings of aluminum strips required for the production of railway cabins, trucks, urban rails, automobiles, heavy trucks, vessels, machinery equipment for transport and communications, and power engineering, are produced by aluminum plates and medium thickness aluminum plates, latter of which must be imported from overseas. The group, which tries to develop outer casings for the above-mentioned aluminum strips, is willing to be the one who first enters the high-end aluminum rolling material production market in China. The group aims to make China’s aluminum market self-sufficient by the entry and need no more of exports. A research report reveals that the high-end aluminum rolling material production market will become one with development potential after industrial aluminum and deep processing aluminum markets. In 2009, global demand for high-end aluminum rolling material amounted to 14 million tons but in 2020 that number will double to 28 million tons. Zhang said the group has ordered production equipment for high-end aluminum rolling material from 2011 and the cumulative orders total US$3.8 billion. The group will get ready for producing its first batch of high-end aluminum rolling material products, he said. He expects the high-end aluminum rolling material unit to commence production in the second half of 2014 with production capacity touching 1.8 million tons.