Flies falling

Written by Paul Adkins

Purely anecdotal, but nevertheless enlightening.

For being one of the provinces closer to the coast, and being on the edge of the Yangtze River, Anhui province is also one of China’s poorest.   The mighty growth seen in other cities and regions passed Anhui by.  It’s also home to my wife’s family.

In a conversation yesterday with my wife’s brother, he told the story of a businessman who contacted a senior government official, seeking to make a donation of cash.  This is not uncommon in China – if you want to get somewhere in business, you have to lubricate the wheels of the bureaucracy in your area.   But this senior cadre was not available, so his 2IC agreed to hold the money for him.

That was fine, and all was well until the Communist Party Inspection team came to learn of the payment.   Upon investigation, the inspection team discovered that the underling official was holding a large amount of cash. Never mind that he was holding it for his boss – he went to prison.

According to my brother in law, some 100 minor officials in his town outside the Capital Hefei have now been arrested as part of the corruption sweep.    It’s no certainty that in President Xi’s campaign to stamp out the “tigers and the flies” that he will get anywhere near his target. As one commentator observed, for the vast majority of Chinese people, the tigers have no influence on their lives, but the flies are everywhere. But to hear of 100 officials being taken down in a town with a population of only 100,000, it is certainly having more of a reach than some people expected.

 

China cuts interest rates

Written by Paul Adkins

China has cut interest rates on loans by 40 basis points, and on deposits by 25 basis points, for the first time since 2012.

Analysts agree that the move is directly aimed at China’s housing and real estate market, which is sagging under over-supply of apartments, falling construction rates, non-performing loans and prices that continue to fall.

New-home prices dropped in October in 67 of 70 major cities, according to a recent Bloomberg report,  and housing sales slumped 10 percent in the first 10 months from a year earlier. Bad loans have risen 10% in the last quarter alone.

The 1-year lending rate has dropped to 5.6%. According to the press release that the People’s Bank of China issued with the announcement, this action should be enough to revive the struggling economy. The PBoC has already pumped US$126 billion into the economy since September.

While leading banks are probably less exposed to the troubles of the housing market, regional and local banks are likely far more at risk. We have already seen that exposure at a local level lead to aluminium smelters being forced to re-open to service their debts.   The key to this cut in lending rates reviving the economy is if the renewed enthusiasm generates a revival that sees debts paid off, not new debts being added to the pile.

 

 

 

Getting the numbers right

Written by Paul Adkins

Platts ran a story recently, quoting the Henan Provincial Nonferrous Metals Guild as saying that the number of aluminium producers in China has slipped from 120 a decade ago to 64 now.  The article isn’t worded very well, but it seems to indicate that there are 32 corporations who own those 64 plants.

There’s one small problem with this data – it’s wrong. Any of you who subscribe to our monthly Pipeline Report will know that there are 80 smelters operating right now, with another 11 idle. Those 91 plants are owned by about 40 different corporations or companies.

We can’t speak to what the numbers were 10 years ago, because we weren’t keeping statistics in 2004. (AZ China was established in 2006.)

But it’s fair to say that the population of companies in the aluminium game in China has been steady in the last 4-5 years. There have been a couple of companies go bankrupt, but there’s been at least one new entrant – Jiarun, which is a real estate company. Indeed, it’s not unusual for companies to enter the primary metal industry from other entry points. China’s most successful aluminium company, Hong Qiao, started life as a garment manufacturer.   Companies such as CPIC and Shenhuo are energy companies.

While the population of companies has remained roughly stable, the population of plants is of course growing, but not in Henan Province. Henan used to be the spiritual heartland of China’s aluminium story, but today with high energy costs and an ageing smelter population, Henan is now well down below the new leading provinces – Shandong, Xinjiang, and elsewhere.

If you need to know what’s happening inside China’s aluminium smelters, who is coming or going, what projects are planned for when, and which plants are idle, you need to subscribe to the AZ China Pipeline Report.   Contact us for more information about subscribing.

 

ARABAL

Written by Paul Adkins

I will be at ARABAL in Bahrain next week.   If you would like to meet with me, please send me an email to book a time.

Export tariff talk

Written by Paul Adkins

Several people have contacted me recently about a rumour circulating that China would be scrapping the 15% export tariff on raw aluminium.

According to our sources, Chalco put this proposition to the government back in June/July.  The government then sought comment from industry insiders, and the feedback they got was that doing so would only encourage an industry that was already over-capacity.  Eventually Chalco withdrew the proposal, in about August according to our sources.

Given the amount of chatter on the topic recently, we have gone back to our sources, who have said it remains that there are no plans to scrap the tariff.   Someone is however seeking to remove the tariff on non-alloyed strips and rods, but our sources say this has limited chance of success.

One can never be sure that Governments will do or not do what they say, so we will keep watching for any changes on this. But for now, we think that what is happening is that the same rumour is simply doing the rounds. A little like a common cold, everyone is catching it.

FWIW, tariff notifications usually come out in the first week of December, for the following year.   So we will know soon enough, as we will for imports of high sulphur petcoke.  There was a lot of talk this time last year that a tariff would be introduced on this item, but it didn’t happen.

 

Laughing my head off

Written by Paul Adkins

I just caught wind of some comments made about me on an Australian website/forum.   Back in March of this year, I questioned on this blog some aspects of a press release by an Australian company that was touting a deal made with Chinalco for the supply of graphite for aluminium anodes. The graphite will be mined in Mozambique.

According to the person who wrote the comments (under a pseudonym), I have painted myself into a corner and must be embarrassed.   I am still laughing at this personal attack.

Graphite doesn’t change it’s nature just because it’s now November not March.   It’s still too expensive for an anode, it’s still a difficult and dangerous proposition to use in an anode and it’s still not being used in Chinese anodes.   It’s being used in cathodes, where it makes a whole lot more sense.  Cathodes are designed to allow for thermal expansion, and when the electricity passes through the cathode, the electrolysis process has already taken place.   For anodes, it’s an entirely different equation.   Although anodes can be manufactured along similar lines as cathodes, anodes are right there at the “coal face” so to speak. To have some percentage of the anode perform differently at 950C than other parts is a good way to get dusting in the pot and cracks in your anodes.

If you are lucky, you might extend the life of the anode by introducing graphite into the mix. But you still have to work on a steady cycle of replacing spent anodes, usually something like 21 days.   If some pots are running graphite anodes successfully, then they have to skip the cycle, which means the whole line is now out of sync.  You can easily lose control of the entire line if you lose control of your anode cycle.

I also questioned the cost of bringing containers full of graphite to China.   In March when I wrote that comment, anode grade petcoke was selling in China for around RMB1750 per tonne. The same material is now selling for as low as RMB1280 per tonne. Although that’s ex-works, it doesn’t cost a lot more to truck or barge the coke to the calciner and the anode plant (about RMB30/t on average).  If it was a challenge to convince smelters to use imported graphite in March, what must it be like now?

This year China will produce 26.5 million tonnes of primary aluminium.   At 450kgs per tonne of metal produced (on a net basis – on a gross basis, you have to manage graphite scrap, which becomes another headache), that means that China will consume just under 12 million tonnes of anodes, which means about 11 million tonnes of calcined coke. At what percentage will graphite replace calcined coke?   100%?   Impossible – it’s difficult enough to get graphite now.   So it has to be a blend, and as soon as you blend two different carbons with two different isotropic performance levels and co-efficients of thermal expansion, you get into trouble.

The whole point of a press release is to garner positive sentiment towards the company that puts it out there. The people at the graphite company probably achieved their goal, regardless what I think or say.   And good luck to them, I hope they do well. But I sure hope they aren’t expecting China to suddenly switch to graphite anodes.   Cathodes, yes, and graphite electrodes for the steel industry, sure. But not anodes.

If anybody is desperate to see the original thread, please contact me and I will let you know. I am not going to grace them with a link here.

Embarrassed?  Amused.

(Hat tip to Tom for letting me know about the comments.)

Conde Nast captures us

Written by Paul Adkins

Hat tip to Simon who sent me this cartoon.  It comes from Conde Nast, and I acknowledge their ownership and rights, but doesn’t this sum it all up so beautifully.

william-hamilton-i-ve-learned-a-lot-in-sixty-three-years-but-unfortunately-almost-all-o-new-yorker-cartoon

 

 

 

 

 

 

 

 

 

Go to this link to purchase a copy to frame and hang on your office wall. It’s priceless.

http://www.condenaststore.com/-sp/I-ve-learned-a-lot-in-sixty-three-years-But-unfortunately-almost-all-o-New-Yorker-Cartoon-Prints_i8562928_.htm

Malaysia – The “new Indonesia?”

Written by Paul Adkins

One of the popular discussion points this year has been about how will China replace Indonesia as a source of bauxite.

Since the Indonesian Government carried out its veto on exports of raw commodities (which it had been warning the market of since 2009), Chinese players have been trying a wide range of alternatives.  Those have included Fiji, the Dominican Republic, India, Australia, Ghana and Guinea, amongst many other countries.  Meantime, alumina imports have also increased by 60% – a short-term replacement, since China has plenty of alumina refining capacity.

Meantime, some commentators have been sitting on the sidelines suggesting that shortages of bauxite and lack of refining capacity would stymie China’s aluminium industry.  Two leading banks – Soc Gen and Goldman Sachs – have both published reports which tried to lead their readers to this conclusion, though both reports were poorly argued.

But while all this is happening, Malaysia has been quietly entering the fray. From 160,000t in 2013, Malaysia’s sales to China have reached 1.3 million tonnes so far this year.   While that’s small fry compared to a total of up to 120 million tonnes in bauxite-equivalent demand, the stage is set for huge growth in 2015.

Already there are at least four large refiners in Shandong Province processing Malaysian bauxite and one is planning to do so. According to one leading analyst (whom I won’t name since they are a direct competitor of ours) is predicting 10 million tonnes in 2015, and 20 million tonnes in 2016.

We aren’t putting a stake in the ground on those sorts of numbers, because frankly we are still gathering the data.

But what we do know is that there are several companies now developing leases there. Exports are suffering presently because of the rainy season, but one player there (all the activity seems to be in Kuantan, about 250kms east of KL) expects to ramp up to 10,000 tonnes per day, and is currently acquiring more leases to further expand their capability.  That’s one player producing up to 3.6 million tonnes per year on his own, and there are several others along the same path.

It’s still not at the volume that Indonesia reached at its peak, but when you consider the difficulties of moving ore from the wrong side of Africa, or the wrong side of the Panama Canal, Malaysia must seem like a mini-Indonesia to the Chinese alumina refining industry.

Crude oil conundrum

Written by Paul Adkins

The falling price of crude oil around the world is having impacts in all sorts of little places and in all sorts of little ways. As crude oil prices fall, and as demand wanes in the face of negative sentiment and disappointing economic news, China’s oil refineries are pegging back production of petroleum and petroleum products in order to maintain a healthy price.

The result is that raw petroleum coke production is falling, just at a time when China’s aluminium industry is ramping up and demand for the raw material for anodes is rising. At this time, prices are being caught in a squeeze play – refineries want more for their coke, but smelters and anode plants are resisting the push, pointing to the low metal price.

Indeed, China’s aluminium smelters are starting to get a bit smarter about coke.   They are now upping their standards and tightening their specifications, in an attempt to squeeze more out of each anode.   China’s net carbon consumption per tonne of aluminium produced is far better than it used to be even 10 years ago, but still lags Western best practice.  Even with tighter specs, the smelters are still refusing to pay more.

The other outcome is that coke available for export to countries like Bahrain and India is now becoming a little less available.   Anode grade coke exports are likely to slip in volume the rest of this year, and the prices improve, as the export market has less ability to resist the price push.

So if you find yourself having to pay more for Chinese coke or anodes, blame the falling crude oil price.

Zoo news

Written by Paul Adkins

Continuing to bring you news of comings and goings…

Francesco Bassoli has been named Chief Procurement Officer at Alcoa. This is yet another leg-up for Francesco, having been Global Procurement Director, then Vice President Europe Materials Management and Vice President Shared Services.  A pretty good run up the ladder in the 6 and a bit years he has been at Alcoa.   Congratulations Francesco.

I am told that Dan Lane has exited Glencore.    (Perhaps someone can confirm this for me. I only have his email address, which is now bouncing.)   Dan was the guy in the GPC and CPC world who forever looked the youngest of any of us, but matched that by also being one of the tallest and definitely the fastest talker. For a slow-witted guy like me, it was always a challenge keeping up with the speed at which he spoke. If it’s true that he’s no longer at Glencore then we all wish him good luck for the future.

If you have any other news of people’s comings and goings, please feel free to drop me an email.