Pollution matters

Written by Paul Adkins

We foreigners pass judgement on the terrible pollution in cities like Beijing and Tianjin and Baoding and hundreds of other cities, but does the average Chinese citizen care?

You bet.  Just consider the case of the video posted yesterday by Chai Jing.  Ms Chai was a relatively famous TV personality in China, who gave up her job to investigate and examine the pollution situation around the country.  She released a 5 minute video on line yesterday, which at the time of this post had secured 100 million views.   That’s 100 million in 24 hours, an incredible result on many levels.

The video itself, called “Under the Dome”, link here, shows scenes that we who know China are well used to. Some scenes seem a little scripted, such as when she asks a child if she has ever seen the stars in the night sky, to which the girl answers no. But the fact that 100 million people have viewed the video speaks volumes for how much of an issue pollution is to the average Chinese citizen.

That in turn begs the question, how come the authorities allowed the video to stay on line, or even be screened in the first place?   Various theories are circulating, from the suggestion that the censors were asleep at the wheel, to the theory that there is government money behind the production of the video. Pollution is a topic that can’t be swept under the carpet, so perhaps the view is to assist with naming and shaming those who pollute.

The producer Ms Chai has promised to provide English subtitles, so to understand the video at present you need some Chinese, though some of the images speak for themselves.

 

China cuts interest rates

Written by Paul Adkins

The People’s Bank of China (PBoC) has tonight cut interest rates by 25 basis points.

The new rate effective tomorrow, will bring the one-year lending rate to 5.35% from 5.6% and the one-year deposit rate to 2.5% from 2.75%.

It is a sure sign that the authorities in Beijing are worried about the slowing economy. The PBoC’s official statement said that the move was made in order to help domestic business borrowing costs.   But with total personal and corporate debt now at 200% of GDP, and with debt servicing costs running at over 30% of GDP, this rate cut is not likely to deliver much in the way of benefits.

it’s worth noting that on Friday, the day before the announcement, the Yuan dropped in value to USD6.25. Did someone know that interest rates were going to fall?   Not that it was hard to guess – we predicted more monetary action in our most recent World Aluminium Monthly.

 

The Gospel according to Xi who must be obeyed

Written by Paul Adkins

The big news coming out of China today is the rollout of a new set of pronouncements from President Xi Jinping.

The pronouncements have the distinctly Chinese label of the “Four Comprehensives”, and appear to be getting the same elevated status as former President Jiang Zemin’s “Three Represents”.   Former President Hu Jintao had his own “gospel”, which he, being an engineer by trade, called the “Scientific outlook on development.”

So it’s nothing new that Chinese Presidents deliver their pronouncements to the masses.   What is interesting in the Xi version however is the heavy emphasis on control and reform.

The Four Comprehensives are: Comprehensively building a moderately prosperous society, comprehensively deepening reform, comprehensively governing the nation according to law, comprehensively strictly governing the party. According to the Chinese press, the crystallisation of these concepts is not a new development. The official line is that he has been governing according to these principles since he took office.

And that gives us a clue to what the Four Comprehensives are really all about.   In the official Communist Party model, reform means getting back onto the right path, not changing for change’s sake or adopting Western ideas.   Quite the opposite in fact.   The Internet in China is now becoming more like an intranet.   Journalists are being restricted more than ever before. The debate over “Rule of Law” has now been adjusted to mean “Rule by Law”.

No single action undertaken by President Xi in his short time in office should be seen in isolation.   One needs to understand that the crackdown on corruption is being done at the same time as the change in rhetoric about economic growth and purity of Party thought. The overriding principle for the ongoing survival and enrichment of the Chinese nation is that the Party be paramount. The Party sits above the law. The Party oversees economic growth, not to mention defence and foreign policy.  For these reasons, the Party must be constantly purified.   Essentially it’s no different that Chairman Mao’s occasional purges, when those deemed as being Right Wing were sent to re-education farms, though the 21st century version is more nuanced and discreet.

What does all this mean for the aluminium industry?  Essentially nothing new, though perhaps motives for certain actions may become more apparent.  The ability of SOEs to behave in certain ways, raise capital and make decisions may start to more clearly reflect that the puppet master continues to be the Party. We in the West begin to not notice the puppet strings, so caught up are we in what is happening here and now in markets.   We wonder why Beijing talks about over-capacity in the industry, but when the chance comes to do something about it, the walk doesn’t match the talk.   Regional and local governments step in with subsidies and other forms of support to keep sick and dying plants alive, rather like a dying patient on a life-support system.  Controlling debt and credit risk is rated as being more important than the health of the market or the industry, since debt and credit risk pervade all aspects of the economy.

Coming back to the Four Comprehensives, it’s also interesting to note that the first point calls for a moderately prosperous society.  One reading of that turn of phrase could be that the health of the party and the pillars of society are of greater importance than the prosperity of the masses.   Why say “moderately” prosperous? Why qualify the noun at all? Because the people’s best interests are served by a strong, pure, strict party which controls the pulleys and pillars of society wisely, in the eyes of those who lead the country.

 

 

 

四个全面

Panning the Flash

Written by Paul Adkins

China’s Flash PMI number came out today, with a slightly better 50.1 for February.  Some commentators have described this as encouraging, but I for one find it difficult to assign any optimism to this number.

This February has had a loss of at least a week of production time, with Chinese New Year falling on Feb 19.   Factories and offices returned to work today.  To collect the data from factories to get this month’s Flash PMI number, there’s only one way that could have happened.   The data must have been collected prior to the 18th, and probably rolled up, cleansed, filtered and seasonally adjusted prior to the holidays in order for HSBC to release the number within an hour of the working month resuming.

In an economic environment that contains a lot of spurious data, this has to be a datapoint that needs to be treated with a large grain of salt. Indeed, the Shanghai base metals market seemed to think so too, dropping slightly when the market re-opened this morning.

Who Am I?

Written by Paul Adkins

Here’s a test for all you who are involved in any way with the international coke market. Feel free to forward this to your colleagues, and challenge them too!

Which country had the following history of CPC purchases from China in 2014?
Q1    10,000t at US$285/t
Q2    2,500t at US$255/t
Q3    Nothing
Q4    20,000t at US$258/t?

  1. Which Chinese CPC supplier had the following sales history in 2014?
    Q1   20,000t at US$311/t
    Q2   100,000t at US$285/t
    Q3   70,000t at US$274/t
    Q4   55,000t at US$251/t?
  2. We know that CPC prices dropped through 2014, but can you pick which country got the biggest reduction in price/cost?   See if you can match the country to the % reduction in this list.
    Australia       22%
    Russia            12%
    India                3%
    UAE               21%
    Iran                28%    (Hint, one of these figures is alongside the correct country, so you only need the other 4… if      you can guess which one is the right one.) (Second hint – one of these countries is the correct answer to Q1.)
  3. See if you know which of China’s oil refineries produce the most petcoke. Sort these refineries in order of their 2014 production.
    A.   Sinopec Qilu Refinery
    B.   Sinopec Gaoqiao Refinery
    C.   CNPC Jinzhou Refinery
    D.   CNPC Fushun Refinery
    E.   CNOOC Huizhou Refinery
    F.   Independent Dongming Refinery
  4. There are 74 refineries in China that are registered as producing anode grade coke. But how many of those 74 produced more than 100,000t in 2014?
    Less than 20?
    Somewhere between 20 and 30?
    Somewhere between 31 and 40?
    More than 41?
  5. What was the Export CPC price as a percentage of the LME in Q4 2014?   (In other words, if CPC averaged $300 for the quarter, and the LME averaged $2000, then the ratio is 15%.) This is an important metric, since smelters can only pay for their purchases using the revenue earned from selling their metal.
    14% or lower?
    Between 14.1% and 15%
    Between 15.1% and 16%
    Between 16.1% and 17%
    Over 17%

All these questions can be answered using AZ China’s amazing Semester Pricing Handbook (SPH). The SPH is packed with all sorts of information, data, analysis and charts.   The SPH is designed to be your definitive guide to managing your coke purchases/sales.   It doesn’t matter on which side of the table you are sitting, the SPH is an invaluable resource.  The next edition of the SPH is due out on Friday 27th, so make sure you subscribe soon.

I will publish the answers to these 6 questions after Chinese New Year, but there is a prize in it if you can get at least 4 of the questions right.   Send me your answers using the contact form below, and if you have at least 4 right answers, AZ China will give you a 25% reduction on the subscription price of the SPH. That’s a saving of around $1000, so it is worth having a go.   And even if you don’t want to take up a subscription to the SPH, send in your answers and see how you perform against your colleagues and counterparts.

Good luck!

RTA looking forward

Written by Paul Adkins

RTA boss Alfredo Barrios has told reporters the company will look to build additional smelting capacity in French Canada once the metal price returns to a suitable level.

Mr Barrios gave no indication of timing other than that in the longer term, demand should move well ahead of supply, justifying capital deployment into new capacity.

Specifically he mentioned two possible new smelters (all of you out there who keep a spreadsheet of possible projects, take note). The first was a possible expansion of the Jonquiere AP60 smelter, while he also mentioned a new smelter for Alouette.

It was always on the cards that the AP60 plant would be expanded to a full size plant.   I understand the land and base facilities are in place, and where possible internal infrastructure was designed with an expansion in mind.   The 37 pots in operation there were always a model plant. A new plant in Alouette would be an interesting expansion. The existing plant is now 26 years old, though it went through a significant expansion in 2005, to take it to its present 550,000t.

The super cycle is well and truly in play.

Xin Nian Kuai Le!

Written by Paul Adkins

Happy Chinese New Year to all of you!

AZ China will be closed for the statutory holidays starting tomorrow, re-opening Feb 25.   I will post any news that comes up, and will check my emails from time to time.

We wish all readers a very happy new year of the Goat (or Sheep or Ram).

 

Selling as much, enjoying it less

Written by Paul Adkins

A look at the results for coal tar pitch in 2014 makes for some telling reading.

China exported 540,000t of pitch in 2014, which puts it on line with the previous year.  This is a good outcome, in volume terms, since China’s markets in the Middle East were under attack from European producers. But the sales volume came at a cost, with prices down an average 11% on 2013 prices.

When it comes to country-by-country trade, the results are stark.   The UAE increased its purchases by 53% over 2013, while India’s purchases rose by a whopping 146%, no doubt due to the new Indian-owned pitch plant now operating in China.   But Qatar reduced their take by 10% (which could be a vessel timing hiccup) and Russia’s off-take dropped 80%.

I understand Russia is now taking pitch from suppliers in Eastern Europe, who seem to have transferred their focus from the Middle East to Russia, looking at these trends.

Koppers remains the leading exporter of coal tar pitch from China, with 19% market share based on value.  But it’s a Pyrrhic victory, because Huanghua exported under two different corporate entities, claiming 18% and 11% respectively.   JFE was the other supplier with over 10% market share.   The Himadri plant that I mentioned earlier achieved 8% market share.

Of course, coal tar pitch isn’t only used as a binder in the making of anodes.   In 2014 China exported small amounts of pitch to Haiti, Uganda, Vietnam, Bangladesh, Guinea, Philippines, Congo, Mongolia, Belarus and South Korea. None of these countries are known for their aluminium or anode making capacity.

Depressing statistics

Written by Paul Adkins

We knew already that 2014 was a tough year, but some statistics in the February edition of the Black China Report confirms that.  The report shows that low sulphur pet coke exports were down 15% in volume in 2014 compared to 2013, while imports were down 25%. Anode exports were down 32% and cathodes by 42%.   The only bright spots in volume were for aluminium fluoride, which saw a 29% increase and high sulphur pet coke exports which rose by 34%.

Prices also showed slides. Pet coke exports were down by 15%, calcined coke by 12% and coal tar pitch by 11%.   Anode prices fell by only 4%, which perhaps suggests that margins were healthier in that sector.

If you are a subscriber to the Black China Report, you should have received the email link yesterday.   If you aren’t a subscriber yet, or if you missed yesterday’s email link, simply complete this contact form, and we will do the rest.

The elephant in the room – part 2

Written by Paul Adkins

There’s no doubt that the action taken by the USA against China is prompted by the build up to today’s situation.   The rapid rise of Chinese exports has caught everyone’s attention. But as well as defending today’s US manufacturing jobs, this action could also have the effect of protecting tomorrow’s jobs, and profits.

How?   Consider this – Alcoa, Novelis and others have had a major boost to share prices and outlooks thanks to the decision by the automotive companies to switch to aluminium panels in the US SUV market.   The particular kind of metal needed must have high strength, uniform properties for each panel, must be light weight and must be a certain shape and size and thickness to suit car makers’ specs. All these characteristics mean a highly customised product, which in turn means high margins for the aluminium companies. Hence their share prices have rocketed since the move was announced.

The last thing that Alcoa and the other suppliers would want therefore, is for low-cost Chinese metal to enter this market. Now, that’s not going to happen any time in the near future, as it takes a long while to gain supplier approval from the likes of Ford and GM, and it takes a lot of capital to build the annealing furnaces and other equipment to make the metal in the first place.   But capital is not a problem in China, and with Chinese rolling mills reportedly running at around 50% utilisation, there’s no time like the present to start gearing up to penetrate the US auto market.

Let’s face it. Ford and GM and other car makers are not going to say no to testing Chinese or other imported metal, if it presents an opportunity to drive the price down.   Even if they take years to get around to even testing the metal much less approving it, it won’t stop Ford and GM putting pressure on their suppliers to match Chinese prices.

So quite apart from what this action means for today’s market players, it could also play nicely for the big aluminium companies outside China in the future.

By the way, why am I referring to this WTO action as the elephant in the room?   Because I suspect that beyond an official rebuttal of the claim, we will see little to no official discussion of it.  Possibly an editorial in the China Daily renouncing American politicians, but not much else, and certainly no mention of it inside China.   I suspect China’s actions will speak far louder than its words, in this case.