We know that the development of an industry has certain rules that can be followed. This is because emerging industries formed by new technological innovations or the collapse of existing monopolies generally experience the process of creating, establishing scales, concentrating industries, and later forming new monopolies or demise. In simple terms, this context is very clear, but the actual situation is much more complicated. China's electrolytic aluminum industry is a vivid example.
The development of China's electrolytic aluminum industry began with the government's deregulation and the admission of private capital, the decentralization of state-owned enterprises’ operating rights, and the transformation of joint-stock companies to break this traditional administrative monopoly industry. The initial huge profits stimulated the increase of investment and the entry of competitors, and the concentration of the industry quickly declined. Immediately afterwards, competitors rapidly emerged and divided up markets. The enterprises at this stage fully enjoyed the fruitful fruits of the rapid development of the industry, but also pre-empted the subsequent crisis.
In order to increase market share, market participants paid more attention to operating income rather than profits, and strived to increase production capacity. At the same time, new participants were constantly influx, which directly led to high initial alumina costs and electrolytic aluminum production capacity. A large amount of surplus, the entire industry losses. In this process, some enterprises have a favorable position in the competition because of their monopoly of mineral resources, economies of scale, and even policy advantages. The profit point of the entire aluminum industry gradually moves closer to these enterprises.
Some of these leading companies to seize the opportunity to counter-cyclical mergers and acquisitions, the development of electrolytic aluminum industry has gradually shown signs of a healthy transition. At the same time, however, the alumina industry upstream of electrolytic aluminum has repeated the same story. With the rapid release of new expansion capacity, alumina prices have fallen sharply since the second quarter of 2006, and the reduction in raw material costs has opened up electrolysis. Aluminum business profit margins. As a result, the economic prosperity of the original loss-making industry has risen sharply in the short-term, and the investment in the electrolytic aluminum industry has been revived. As a result, the direction of its future development has become confusing.
The development of the electrolytic aluminum industry and changes in the market are unpredictable. However, in terms of strategies for the long-term development of enterprises, how to survive in turmoil and seek development in competition? It also depends on whether it is in line with the development curve of the industry and is strategically ahead of the market. In the initial stage of market opening, related companies are striving to expand their market share and focus on the spot market. However, as the competition in the industry gradually intensifies, the development of the enterprise will inevitably encounter bottlenecks, and face a series of issues such as rising costs, stagnating sales, and rapid decline in profits. How to solve? This requires each company to consider the use of futures as an effective management tool for market risk, in order to win a stable operating environment, so as to achieve the purpose of sustainable development.
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