CPC-X back up and running

Written by Paul Adkins

We recently had a bug get into the CPC-X function on our website.  This has now been fixed, and you should be able to enter the site.

Contact us if you have any problems accessing the site.

CPC-X is AZ China’s independent index on Calcined Coke prices.   By strictly ensuring that both buyer and seller confirm the price, we are able to provide a tool that allows the market to set a price in good faith.

The index breaks calcined coke into 5 different categories. Within each category, users can still negotiate a premium/discount for the differences between the coke category and their cargo. We also define by region, to allow for any regional differences.   For more information on how to use the AZ China CPC-X, contact us at blackchina@az-china.com.

 

Golden Week

Written by Paul Adkins

AZ China’s offices will be closed for one week commencing tomorrow, as China celebrates the October 1949 revolution that put the Communist Party in power. The holiday lasts a week on the mainland, though only 2 days in Hong Kong.

We will continue to report on the market and industry via this blog.

The office will re-open October 8.

 

 

Easy come, easy go

Written by Paul Adkins

Markets were pleasantly surprised 9 days ago when the HSBC Flash PMI came in at 50.5. That result was better than the consensus forecast of 50.0, and a little better than August’s level of 50.2.

Any score above 50 represents growth.

But this morning’s announcement from HSBC took that little fillip away.   The final number for September has been declared as 50.2, the same as August.

According to the HSBC announcement, new orders and factory output were both revised down from the flash reading, with the one bright spot being that new export orders were up.

While it’s still an expansionary number, markets have been looking for signs that the bad news of the last few weeks was a temporary phenomenon, not part of a general slowdown in China’s economy. This morning’s number does nothing to encourage markets and nothing to suggest that some sort of government intervention will happen soon.

 

HK: Why “umbrella revolution” is a bad idea

Written by Paul Adkins

The iconic photo of a single man holding up an umbrella in a sea of tear gas is likely to go into the pages of photojournalism history. And the slogan that has risen from the throng of Hong Kong protestors, of “Umbrella Revolution” has a nice ring to it.

umbrella

 

 

 

 

 

 

 

 

Umbrellas served as a flimsy defence in the tear gas and pepper spray responses from HK police on Sunday, but a better defence against HK’s fierce midday heat on Monday. Umbrellas are a simple yet effective symbol for a demonstration – multi-coloured yet with the same purpose.

To the eyes of those in power in Beijing, it’s not a long jump to be reminded of the colour uprisings in the Arab Spring. For centuries, colours have been a powerful symbol and rallying point for protestors, and the fact that HK’s umbrellas are multi-coloured makes no difference.

But the real problem is in the second word. The protests so far have been about rejecting Beijing’s plans for the 2017 election of a new Chief Executive for the island.   That’s a protest, not a revolution. It’s likely that there are numerous other grievances bubbling under the surface, some related to the main point, some in relation to Beijing’s governance overall, some totally unrelated to the pursuit of democracy. But if the protest leaders allow the agenda to be broadened into a wider framework more closely aligned to revolution than to protest, Beijing’s reaction is likely to be much more severe.

As it is, Beijing has few options.   It could quietly seek the present Chief Executive’s resignation – CY Leung is unpopular on the island. It could send in reinforcements to bolster the HK police and its military presence on the island, said to be about 6000 troops. Or it could take a conciliatory approach, setting up discussions that cause the protestors to go home but which run for months with no progress. (Such an approach was used a couple of years ago when similar protests took place in Southern China, with the discussions on reform achieving nothing. HK is not likely to be fooled by that approach, and any new protest is only likely to be more strident.) One thing is for sure – Beijing will not back down or reverse its decisions.   Beijing cannot afford to send messages to Taiwan, Xinjiang, Tibet and other restive groups that if you push hard enough you will get your way.

President Xi Jinping has already shown his credentials in his primary role as defender and promoter of the Communist Party. He has brought down an ongoing campaign against corruption within the party, and brought the PLA into alignment by replacing some generals. The language of compromise and consideration has not been part of his rhetoric since he took power, so it’s unlikely we will see that sort of reaction in HK.

Many commentators have been jumping to comparisons with the 1989 Tiananmen Square protests, and they way they were dealt with.   Perhaps a more current comparison is to look to Urumqi. The Party’s reactions in places like Xinjiang are a grim reminder of what could happen. Of course, HK is completely different to Urumqi. HK has the advantage of being an international financial centre and hub for multi-national corporations. It is an important trade link for imports and exports. But Xinjiang has vast reserves of coal and is an important strategic outpost protecting China’s western front. In that respect, HK and Xinjiang are similar. They have strategic and commercial value to Beijing.

Perhaps the most important difference is that in Xinjiang, the protestors are Uighur, seeking religious freedom amongst other things. In HK, the protestors are Chinese, seeking freedoms that go directly against the Communist Party’s model, a more unpalatable fact for Beijing.

Let’s hope the protestors stay on message, that it’s a protest, not a revolution. For the sake of their safety.

Tomorrow is a key test date – October 1 is the anniversary of the Communists taking over China in 1949.

 

HK: This is serious

Written by Paul Adkins

The international press has yet to catch up with the goings-on in Hong Kong, but the potential for a major push back by Beijing is becoming a serious threat.

Thousands of students and locals demonstrated in Hong Kong yesterday, blocking parts of the Central Business District. They are protesting against Beijing’s watering down of the agreement signed when Britain handed its former colony back to the Chinese. Beijing’s mantra at the time was “One Country, Two Systems”, but recent announcements and policy directives have removed much of what had previously been agreed to, angering many Hong Kongers.

Yesterday’s protests were not the first, but they appear to be the biggest. As of this morning, much of the central business district is still blocked. Hong Kong police have been using pepper spray and tear gas and arresting protestors, amid chants of “Police are Hong Kongers too”. But the response from the local authorities has been tepid.

It’s easy to rush to comparisons of the 1989 protests in Beijing. Protestors calling for democratic reform, wavering reactions from local authorities, a groundswell of optimism and determination among the protestors.  In 1989, we did not have the level of internet access and social networking that we have today, and Hong Kong is much more of an international hub than what Beijing was 25 years ago. But we have a hard man in Xi Jinping in power in Beijing, a man who is currently spearheading a campaign on corruption in the ranks of the Communist Party. He has just completed a reshuffle of senior appointments in the PLA, meaning he has more people in key military positions who owe their allegiance to him.

This morning the students and protestors managed to get to one of the China national flags on one of the major buildings, and turned the flag upside down. It’s a symbolic finger-gesture to Beijing. It’s impossible to say how Beijing will react, but the fear is that  when Beijing acts to close the protests down, it will be a total and complete shutdown of much more than the voices of these students and protestors.

For mine, I would be avoiding the Central/Admiralty areas of HK, and staying away from the island altogether if possible. Unfolding history is rarely a bloodless process.

 

Non-listed property developers to issue debts in exchange

Written by Richard Lu

China’s recent weak economic data for August increased worries about a further slowdown. Although the Central Government confirmed that reform and restructuring would continue, their determination seems in doubt and faltering this morning. Market rumours are that the authorities may allow non-listed property developers to raise finance via issuing debts on the Shanghai Exchange.

Although this remains under review and will not directly support the real estate sector, it will greatly relieve the developers currently under financing pressure, by adding another financing channel option on top of the loan and trust. More importantly, it provides a foundation for the government to release additional bailouts, like direct credit easing.

That said, the financing policy won’t be released quickly as the authorities are studying its potential impact and balancing the necessary powers between the NDRC (National Development and Reform Commission) and the CSRC (China Securities Regulatory Commission), to decide who will eventually get the power to approve any future applications.

China aluminium capacity hits a new high level

Written by June Wang

Recently IAI released the production figures for August.  Monthly production of China aluminum (including China’s estimated but unreported production) climbed to new highs again in August, increasing to 2,277kt, up 9% compared to the same period last year. The figures show that rising aluminium prices helped induce smelters to increase product output after a sluggish first half year, assisted by various subsidies from local governments.

According to AZ China’s research, the growth of total capacity was 19% compared to the same period last month, which was far greater than the monthly production growth. With regard August of 2014, the ratio between total new capacity and restarted capacity is at 2/3, which means more capacity came from current old and restarted smelters then from new builds. After the decline and tougher months of loss leading to widespread shutdowns before June, many smelters took advantage of rising prices to restart in recent months, hoping to recover their earlier losses as much as possible. Overall, previously halted capacities have now almost recovered by August.

In addition, a large proportion of the new capacity that entered the market in August came mainly from the Shandong, Inner Mongolia and Qinghai provinces. All of which have started close to full capacity and are gradually increasing their operational rates. No smelters in the Xinjiang province have come on-stream recently. According to our statistics, nearly 1 million tonnes of annual capacity in the Xinjiang province will come online for production in the coming months.

AZ China has forecast 26.5 million tonnes of production for this year, and based on the current increase in output plus new capacity set to enter the picture, we are confident our prediction will hold true.

Although financial concerns could cause concern for some smelters, the seasonal increase in demand, especially during the ‘golden October’ period should help maintain aluminum prices in the current range, which should stimulate smelters to produce more output. Longer term, as we approach the end of the year, prices are likely to soften slightly, as the market struggles to accept all the new metal. Demand indicators are steady to good, but not spectacular.

Alumina prices are also showing the effect of increased metal production, along with some operational problems at 2 refineries.

 

How to export raw aluminium from China

Written by Paul Adkins

One of the most popular questions we have been getting recently is, will China export more aluminium into the growing supply gap in the Rest of the World (RoW)?

It is well known that China imposes a 15% tariff on the export of raw metal, while semi-finished metal earns a refund of VAT, reducing the cost and making it more competitive in foreign markets. So the popular wisdom is that if China increases exports, it will be in semis.

And this is true. But those of you alert enough, will notice that the heading of this post does not carry a question mark.

The key to increasing exports of both raw metal and semis is … liquid metal.

Operational people will tell you that liquid metal is a great cost saving for both the smelter and its downstream customer. Instead of the smelter having to process metal through the cast house, alloying the metal, cooling it, packing and shipping it to the customer, simply send a crucible full of metal at 600° C plus to the factory. It then also save the downstream factory from the cost of reheating the metal. Provided the factory has spent some money on receiving the metal in liquid form, it saves that factory a lot of money on energy.

And liquid metal is how to export raw metal in the guise of a semi finished product. Simply pour the hot metal into a continuous caster, run the metal one pass through a rolling mill and roll it up into a coil.   It is now a semi finished good, ready for export as 99.7% pure aluminium. albeit not in a 25kg form as is usually the case.

We at AZ China will be bringing more information on this to our clients and subscribers.   Make sure you are on the list.  Contact us at blackchina@az-china.com.

 

Petcoke import ban one step closer

Written by Paul Adkins

In an announcement that is sure to send shivers through the petcoke trading community, China has announced a ban on the import of coal with sulphur levels above 3%.

The new rules, which come into force in January, will have a 3-tier structure of restrictions.   Level 1 bans coastal cities from importing coal having sulphur levels above 1% and ash levels above 20%.   Level 2 bans the transport of coal over 6ookms if the coal has a calorific value of less than 3940kCal/KG, or has sulphur exceeding 1% or ash at 20%.

Level 3 applies a total ban on any coal having ash at 40% and sulphur at 3%.

These moves are part of the government’s push against pollution. Analysts say that Australian coal is likely to be the hardest hit, because of slightly higher ash content.

But it seems to me that it is just a matter of time before similar rules are announced for the import of high sulphur petcoke.   China imported just over 8 million tonnes of this category petcoke in 2013, and there had been rumours this time last year that a ban was imminent.   At that time some entrepreneurs rushed out and bought inventory hoping to capitalise on the supposed ban. But the ban didn’t come, and in any case, imports of high sulphur petcoke have declined in 2014. Higher shipping costs, increased domestic supply and a sluggish economy have conspired to slow China’s appetite. Most imported HS petcoke comes from North America.

There has not been any announcement yet, so this is just an opinion of mine that a ban will come.   While it seems likely in the current environment, regardless of the limited contribution such a ban would make to China’s pollution fight, we will watch for any future announcement on this.

(In Customs data, high sulphur petcoke is defined as any coke having sulphur levels above 3%. Such coke makes an important contribution to the supply of coke for anodes for the aluminium industry.)

 

Chinalco GM “under investigation”

Written by Paul Adkins

Reuters is reporting that Mr Sun Zhaoxue, general manager of Aluminium Corp of China (Chinalco) is under investigation for “serious disciplinary violations”, a euphemism for corruption. The news comes via a notice published by the Central Committee for Disciplinary Investigation (CCDI). This is the Communist Party’s anti-corruption watchdog.

Mr Sun is also vice Chairman of the listed company Chalco, according to Reuters.

We will bring any more news on this as it comes out.