BLACK CHINA BLOG

9
March

Anodes – where will the pain be felt?

By: June Wang | Comments: 0 | Category: Aluminium Anodes AZ China

Do you still remember what had happened in the carbon industry last year?

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China’s carbon industry  has been in a state of limited production since the middle of last year, at the same time as smelters were adding capacity. The resulting short supply caused prices to leap.

Yet the operating rates in the industry have not been all that bad.  Take anodes for instance. The average operating rate was not very low at 76%. In Yunnan and some other regions, factories were running at full capacity during last year. Besides this, the operating rate of other province mainly fluctuated up and down at the average level.

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Note: Others refer to Jiangsu, Guizhou and Sha’anxi province.

However, compared to the smelters expanding, how did the supply side meet the increasing demand? In 2016, China totally produced 18Mt anode, with an additional 1Mt exported to overseas markets. But during the whole past year, China produced 32.8Mt aluminium based on our statistics. Hence in theory, consumption volumes of anode in homeland is 16.4Mt, accounting for 90% of the market. Did the carbon market oversupply? No, it truly not in last year.

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The final interesting thing we find is the chart above.  It shows in terms of province, aluminium production and anode supply rate (=anode production/theoretical consumption -1).

We can roughly divide all smelters into four regions, East (Shandong and Henan), Northwest (Xinjiang and Inner Mongolia), Central (Qinghai and Guizhou) and South (Yunnan).

As the chart shows, apparently the top four provinces have accounted 66% of the market, involving Shandong, Xinjiang, Henan and Inner Mongolia. But in  Shandong and Henan, the supply rate still presented positive.  It means carbon capacity in both regions is sufficient to meet local smelters’ demand. However, as the second biggest aluminium output base,Xinjiang and Mongolia are short anode supply.

In light of the recent news of cuts of up to 50% of carbon capacity in Shandong and Henan next winter, the question is will distance become an enemy of the remote smelters in the northwest?   If supply dives in Shandong province, lower transport costs will allow local smelters pay more for their anodes than their competitors in the northwest.

The issue becomes even more complicated next winter.  Not only might smelters in Xinjiang and Inner Mongolia struggle to get anodes, but some experts are already predicting that shipments of metal from these areas to the markets in the east will be disrupted next winter.  This disruption will come from a shift to coal transport from these same regions.  We already saw this to a small extent this winter, but will restrictions on coal in the eastern and central regions, Xinjiang and Inner Mongolia will have increased incentive to sell more coal to the east.  That will bump primary metal out of the rail wagons.

AZ China will continue to trace capacity change in both regions, and will report our findings to our clients and subscribers.

Thanks to World Aluminum Organisation for the feature image.

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