Enormous investment in the Chinese aluminum foil industry could change the face of the global foil market for many years to come. Chinese demand is forecast to grow by 11.1% per year from 2004 through to 2008, but capacity is expected to increase by 79%, or 566,000 tonnes per year, in that period.
London-based research firm CRU International analyzed rolling costs and concluded that Chinese producers operate with a relatively low cost structure and that China will become a substantial net exporter of foil to the rest of the world.
Yet even that, combined with soaring domestic foil demand, will not be enough to prevent a period of prolonged over-capacity in the Chinese foil rolling industry.
CRU says “over-capacity will also bedevil the North American foil industry, unless steps are taken to rationalize the production base. Mill operating rates in the U.S. and Canada are expected to average only 70% in 2004-2008.”
North American foil demand dropped by 7.8% and 3% in 2001 and 2002, respectively, as first fin stock and then industrial foil demand collapsed. It will take until 2008 before demand reaches the levels of 2000. A lack of substitution opportunities means the long-term growth rate for converter foil, used in flexible packaging, is only in the 0%-to-1% range. Non-automotive fin stock demand recovered in 2003, but down-gauging and the increasing import of Chinese-manufactured air-conditioning units will constrain the sector’s growth to 1.5% per year in 2004-2008.
Demand in the largest regional foil market, Western Europe, fell by about 0.3% in 2003 but is expected to show solid average annual growth of 3.3% over 2004-2008. With capacity utilization rates pushing 90%, foil rollers are unlikely to be too perturbed at losing further market share in commodity products (such as household foil) to offshore producers.
In 2003 world aluminum foil demand stood at 2.42 million tonnes. It is expected to grow by an average 4.6% per year to exceed 3 million tonnes in 2008.
— The preceding is from an information bulletin published by London-based CRU International.
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