China has issued an order on 3 companies in Xinjiang to stop construction of their smelters. The three projects combined would have added 2 million tons of new capacity.
According to the information we have seen, East Hope (800kt), Qiya (800kt) and Jiarun (400kt) were built before approvals were in place.
The document we saw does not show any timeline. In fact, it calls on the community to monitor the projects and gives a phone number to call.
It’s an interesting move. I have already been asked, why those three? Why hit Xinjiang, which is so remote and can do with the GDP boost?
To me, there are two possible ulterior motives at work. The most obvious is that this is an indirect offering to the USA and others who are complaining about excess supply. The trouble with that argument is that Xinjiang is not a threat to any export market, but cutting metal out of Xinjiang will reduce the surplus in the eastern markets.
But the second agenda could be to fire a warning shot to other larger companies to get their houses in order. Remember, Hongqiao was ordered to close 3.6mt of capacity last year, because their didn’t have environmental approval before construction.
This announcement is different from those we have seen in the past. Normally, such edicts do not name individual companies. Think of all the edicts that have gone out in the past, about closing smelters below 160Ka for instance – those edicts could easily have named each plant, but didn’t. And those edicts were ignored. Naming 3 specific companies in Xinjiang leaves the question hanging in the air – what about all those other projects in other provinces?
Xinjiang province has been at the centre of the smelter construction boom since the start of the decade. Xinjiang is now home to more than 7 million tons of operating capacity, with 4 projects still under construction. Tianlong and Tianshan are both completing capacity expansions this year, but were not named in the document.
Jiarun has been at the centre of industry gossip recently, in relation to a very large bill for their purchases of anodes from Sunstone.
By the way, the plant capacities listed in the announcement do not match the plant statistical database that we supply our clients in our Pipeline Reports. For instance, Jiarun is only building 150,000t this year, and their previous project was finished some time ago. We are checking but we think the differences are due to incomplete data being held by the government. We check our data constantly, and we talk to every smelter, so we are confident, but we will double check anyway.
Monday morning update: There’s a photo of part of a document circulating in the Chinese internet which appears to be from the NDRC, and which indicates more actions may be coming. We are straying deeply into the rumors part of the internet here, because we are talking about a photo of part of a document, and although the document carries serial numbers and references to show that it is from the NDRC, the document is not on the NDRC website.
So the provenance of the information is suspect, but the part of the document that can be read indicates that the 3 smelters that we talked about above are just the beginning. Other smelters who do not have the necessary approvals are now in danger, if you trust this document. I will try and bring a copy of it to the blog.