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China's top aluminum maker mulls moving plants to Indonesia

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Aluminum smelters standing idle and cold because of President Xi Jinping's flagship supply-side reforms could run hot with molten metal once again - just not in China.

[SHANGHAI] Aluminum smelters standing idle and cold because of President Xi Jinping's flagship supply-side reforms could run hot with molten metal once again - just not in China.

The nation's top producer of the metal, China Hongqiao Group Ltd, is considering whether to physically relocate shuttered plants to other countries, with Indonesia top of the list of possibilities, according to Chief Executive Officer Zhang Bo.

Hongqiao, also the world's biggest smelter, has been forced this year to cut capacity as part of Mr Xi's drive to curb oversupply and reduce pollution. Mr Zhang said Wednesday that moving idled facilities to the Southeast Asian nation, already a big supplier of raw materials to China and where Hongqiao has alumina operations, could be preferable to scrapping them. It would also match up with Indonesia's policy of wringing more wealth from its abundant resources by processing them at home.

Relocating to Indonesia "would be in line with the Chinese government's push on overseas expansion," Mr Zhang, son of Hongqiao's billionaire founder Zhang Shiping, said in an interview at a conference in Fuzhou. He said the company is talking to investors in the country. "We are optimistic on the outlook for aluminum demand in Indonesia, just as we are familiar with their local society," he said.

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Hongqiao's tentative plan could add a new twist to China's shake-up of its industrial complex, which has helped fire up global metals markets. The ruling Communist Party wants to halt untrammeled expansion now that its economy is maturing and demand growth is slowing, and as the population becomes much less tolerant of pollution.

"Some of Hongqiao's plants were closed not because their technology was bad or uneconomic, but for political reasons," Yi Zhu, analyst at Bloomberg Intelligence, said by phone from Hong Kong. "The private mills like Hongqiao are going to face greater pressure under supply-side reforms, so moving some operations overseas is one possible solution."

Indonesia has already attracted major Chinese metals producers. Tsingshan Holding Group, the world's biggest maker of stainless steel, has expanded operations there to include a huge steel complex that's poised to export worldwide.

"We are studying how much capacity Indonesia can take and how much we can move from here, but it won't be big at the beginning as aluminum and alumina are very different in terms of technology, etc," Mr Zhang said. "We are talking to other countries as well, but Indonesia is the most suitable as we have the alumina project there and also they have big demand."

Hongqiao is a prime target of the supply-side reforms that have swept China this year, and which have helped lift aluminum prices in London by 25 per cent. The firm, based in the east coast province of Shandong, agreed in August to close nearly a third of its capacity, accounting for 2.68 million metric tons, because it had built plants without proper approvals.

The firm plans to add a second 1-million-ton alumina plant to its Indonesian operation by end-2018, CEO Zhang told the conference Thursday. The company is very confident about the project after "the most difficult times" in terms of integrating the business cultures of China and Indonesia. Hongqiao has a 56 per cent stake in the venture, which started its first plant last year.

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