Harvest Season

Written by Paul Adkins

AZ China recently published its latest analysis of China’s cost of producing aluminium.

Quarter 3 2014 was a time for harvesting profits after many years of extremely difficult times. Around 60% of China’s aluminium smelters returned to the black during the quarter. However we seriously doubt if the salad days will last much longer.

It’s all laid out in our Client Briefing Note published a couple of days ago. If you didn’t receive a copy, contact us and we will send you a copy.

 

Who runs Chinalco?

Written by Paul Adkins

Don’t be under any misunderstanding about who controls China’s largest (for now) aluminium company.

The Central Organisation Department of China’s Communist Party this week announced that a politician from the Southwestern city of Chengdu has been appointed to head up the company. The Central Organisation Department is the Party’s equivalent to an HR department, and is responsible for managing career path planning for the Party’s emerging talent.

Ge Honglin has been mayor of Chengdu since 2003, before which he was involved in the steel industry in Shanghai. He therefore has no experience in aluminium. He replaces Xiong Weiping who will take up a position in SASAC, the government department responsible for managing the State’s assets.

Mr Xiong’s progression seems a lot lower in trajectory than his predecessor Xiao Yaqing. Mr Xiao left Chinalco to move into a role in the State Council and the Communist Party’s Central Committee. Perhaps Mr Xiong’s star is tarnished somewhat by the loss of 2 senior executives recently. Sun Zhaoxu was placed under investigation in September for alleged breaches of discipline, a euphemism for corruption.  Li Dongguang, a vice president of Chalco, was placed under investigation about 12 months ago.

Chinalco is a State Owned Enterprise, so it’s no surprise that the government should decide who runs it. But it also controls listed entity Chalco, in which countless investors around the world have placed their trust and funds. And for the Communist Party’s HR department to decide to put a politician with no experience in the industry in charge of the company says that heading up Chinalco is more about grooming politicians than about managing the largest aluminium company in China.

For now. Chalco has the largest smelting capacity in China at present, but more than 10% of its 4 million tonnes of capacity is idle. Meantime, Weiqiao has opened its latest smelter, taking it to about the same level of operating capacity as Chalco. Xinfa, with smelters in east and northwest China, will also have more capacity than Chalco, once it’s Xinjiang smelter reaches full capacity.

 

Marius makes way

Written by Paul Adkins

Marius Esterhuizen is departing Aluminium Bahrain.

Marius, presently Manager Strategic Supply, has been with Alba over 5 years. He will be replaced immediately by Waleed Tamimi. Marius will stay on for a while working on special projects.

Marius was previously with Sohar in Oman, which is where I first met him. Always a straight shooter, Marius has earned the respect and friendship of many in the industry. Marius still owns a house in Oman, and plans to remain in the Middle East to explore new business ventures after taking a sabbatical.

Marius doesn’t quite fit the template for people exiting, per the description I mentioned a couple of posts ago. Marius is still sporting a full head of black hair, unlike many of the rest of us grey-hairs. Nevertheless, everyone here at AZ China wishes him all the best for the future. We look forward to meeting Waleed at a future event.

 

The zoo – who’s who and who’s not.

Written by Paul Adkins

Following on from my previous post, it seems to me that there is precious little space given in our industry for keeping up with who is who and who is not.   New hires, retirements, transfers, promotions – sometimes it’s easy to miss the news that so-and-so has just left to join the opposition or that this or that person has just been promoted or booted.

If you have some news about people coming and going, please feel free to drop me an email. I will not name my sources, but of course I will also not publish anything about people going down the ladder unless it’s verified.

Here’s an easy one that most people in the carbon industry already know.  Phil Higgins of P66/Conoco Phillips fame is retiring.  I have only known Phil since 2008, which is a relatively short time given his years of experience.  Best wishes for a long and healthy retirement Phil.

I know of two other people who have left or are about to leave, but I don’t have verification on one of them and I don’t have permission from the other to reveal that he is retiring.

But if you have any news, tips, leads or press releases you want to share with the industry (I can humbly say this blog is widely read throughout the industry), please feel free to email me.

 

It’s the little things

Written by Paul Adkins

One thing about the aluminium/alumina/bauxite industry and the petcoke/anode business, they are both small worlds. This post isn’t about the metal or the carbon, but about the people.

Each year, we all have occasion to meet at various venues.   Be it TMS in February/March, the AZ China conference every 2 years, the MB conference each September, or other events, it’s always good to catch up with old friends and occasionally to make new friends. (In the carbon game, it’s frightening how many grey hairs are not being replaced with new young blood…)

This year in Abu Dhabi, I had the pleasure of meeting Ian Macintosh and his wife Leila.   They represent interests in Guinean bauxite mining, and we had a good discussion about the challenges and opportunities for investors in that country and their particular project.

But the meeting started with a small anecdote/comment from Ian about AZ China. As soon as he saw my business card, he told me he had met two AZ China staff members at a conference in May. He told me how courteous and engaging they were, and that they were a pleasure to get to know.

That little bit of feedback was powerful. Both girls remembered Ian, and pretty much said the same things about him – that he was friendly and engaging. They thought nothing of reaching out to a “lao wai” at a conference in Qingdao, and it didn’t take much effort for Ian to share the recollection with me. But those small efforts from my staff and from Ian had powerful effects – enough of an effect that Ian remembered 4 months later.  Goes to show, it’s the little things that can make a difference.

We really do have a small industry – many of the same faces year after year until they retire (two more in the carbon industry have just retired).  So it’s good not only to meet some new people, but to build relationships that stand the tests of business, making money, falling prices and cultural differences.   It makes the industry a nice place to be in.

 

 

Fly ash – everything old is new again

Written by Paul Adkins

In the previous post, I reported on the incremental progress in the development of fly ash as a source of alumina in several Chinese refineries.

Reader and former work colleague Gordon sent me an email on the weekend to let me know that in fact Alcan had been experimenting with fly ash as far back as the 1970’s.   Gordon couldn’t remember why the project finally died.

I have been searching online, and find references to laboratory trials and projects going back to the 1960’s.  In fact there is a wide range of literature detailing various programs and their outcomes all the way from the 60’s to the previous decade. In 2001, Alcan got into a spot of bother at its Lynemouth plant when local residents objected to a plan to mine and process fly ash.  Residents were worried that dust generated would affect their lives and health. (They need not have worried – the smelter closed about 10 years later, thanks to depressed aluminium prices.)

The research literature that I have seen seems to suggest that the processes envisaged last century were all too expensive – both the capital costs and the operating costs – and that the waste products were more of a problem than they were worth.

It’s hard to say whether any of this history is known to the Chinese scientists and engineers who are developing fly ash technology in China today. My guess is that it is – there has been a strong presence of Chinese at conferences such as TMS for many years, and the papers are available on the internet. Are the current trials and plants in China a progression from the work done decades ago, or are the Chinese on their own road? I can’t say, but it does suggest that the Chinese progress will take longer than perhaps their bankers would like.

A het tip to Gordon for his email.

Fly ash takes a step forward

Written by Paul Adkins

In the quest for feed for its burgeoning aluminium industry, China has been exploring the world looking for bauxite and/or alumina supplies, while at the same time growing its domestic bauxite mining industry quite rapidly.

But there’s another source of alumina that often gets overlooked. Fly ash, otherwise known as coal ash, can contain up to 45% alumina.   Thanks to China’s enormous steel industry, China has plenty of fly ash available, but the trick has been to develop a technology that would extract the alumina while keeping costs in a reasonable range.

We have reported here previously about developments in Inner Mongolia, especially Datang, who built two refineries devoted to fly ash.   Although official information is scarce, the talk has been that those two plants have struggled, and although the finished material has a higher purity than normal, the cost of production is also very high.

But now comes news about the other company that has been exploring the use of fly ash to produce alumina. Mengxi Aluminium, also in Inner Mongolia, has started commercial operations.   The plant has a design capacity of 400,000t, but at this stage is still only running phase 1. Phase 2 is expected to enter the market early next year.

The new plant has not had a completely smooth ramp up. They were expected to commence operations almost 12 months ago, but technical problems delayed the start-up. But they are now actively pursuing sales opportunities for their alumina.

One suspects that the key to developing successful technology for fly ash is runtime experience. The more that plants run with the material, and the more players that are prepared to go down the fly ash path, the more chances there are that costs will come down.

Please contact AZ China if you would like more information about the size of the potential or other information about fly ash as a source of alumina.

 

Promises, promises

Written by Paul Adkins

One of the hot discussions in the aluminium world at present is the question of how quickly China can replace Indonesian bauxite with material from other sources.  Indonesia stopped exports in January of this year, seeking to keep the value-add inside their own country.

The Indonesians insisted that anyone who wanted their bauxite had to stump up the capital to build alumina capacity in country.   Several projects have been announced, though perhaps only 1 shows any sign of making significant progress.

Now the government of Guinea is hinting that the same rule should apply.    Keeping the value-add in their own country delivers a huge bonus to that country’s economy, as the Indonesians already worked out.

But I remain skeptical as to just how much capacity China will really build outside its own country, and here’s why.

One of the best analysts around is Lloyd O’Carroll, based in the USA.   Lloyd recently published his excellent quarterly aluminium update, and in it he reports that by the end of this year, China will have 65 million tonnes of capacity in alumina refining.   Given metal production will be around 26.5 million tonnes this year, there’s plenty of capacity available.

But here’s the rub. To the end of August (the last month for which details are available), China had imported 3 million tonnes of alumina.   That begs the question as to why it would import alumina when it has plenty of capacity, and the answer is because they have to – it takes too long to bring new bauxite sources into full flow.

But that’s not my point here. My point is, why would anyone lay down significant capital in a foreign country when you already have plenty of capacity at home?

I suspect that the promises being made are what one Australian politician called “non-core promises”. Promises that you can wiggle out of if you have to.

All of which leads me to provide you with this cartoon.

OS capacity promise

Weekly Aluminium Alert – Special Offer

Written by Paul Adkins

AZ China has revamped the Weekly Aluminium Alert recently. We are now providing a market call as part of the service. We are pleased to report that in the 20 weeks since we started making the call, our accuracy level exceeds 95%.

We think this new report is an excellent service to those of you who are in the aluminium market, so we are making a special offer. Buy a 12-month subscription to the weekly aluminium alert, and we will give you one month extra. Pay for your subscription in October, and we will double that to 2 months extra.

That’s right. If you order before October 31, you will receive 13 months subscriptions for the price of 12, taking you through to the end of November 2015. And if we receive your payment on or before October 31, we will extend that an extra month to December 31, 2015. (We will notify you as soon as we receive payment.)

The regular price for the Weekly Aluminium Alert is US$2,000 per subscriber. Discounts are available for multiple users in the same company.

How to take up this offer? Simply send me an email at enquiries@az-china.com. We will send you payment instructions. You can choose to pay by TT or PayPal or via Bitcoin. (Our e-commerce site is coming soon.)

If you aren’t sure that it’s a great help, or you aren’t sure what it covers, send me a note and I will send you a free sample of the report.

 

Why foreign analysts don’t understand China

Written by Paul Adkins

This weekend I got an email from a very respected senior analyst from a competitor company.

He was writing to question my assertion that as much as one third of China’s semis exports are really not semis at all. They are remelted in an intermediary country, then sold as primary metal. By doing so, Chinese entrepreneurs not only avoid the 15% tariff on exports of raw aluminium, but they also pick up 13% of the 17% VAT.

In his email, my esteemed friend told me “I recently visited 6 rolling mills in China, and I found no evidence of what you claim.”

He has fallen for the mistake that so many foreign analysts and commentators make. He takes the lack of evidence available to him as evidence that my view is wrong.

I felt like screaming to him, “Well of course you didn’t find any evidence. Did you expect that they were going to show you? Did you think that you being a “lao wai” would entitle you to access information that is highly sensitive?  You think they are going to admit bending the spirit of the law, if not the letter, to a complete stranger?  Do you think that visiting less than 1/3 of the population of rolling mills in China would allow you to draw conclusions about the other 2/3rds?”

Don’t get me wrong – this guy is very good at what he does, and he has taught me a lot in the time I have known him. I have the greatest respect for him. And I am not picking on my friend; it’s just that I see this attitude too often from all sorts of otherwise credible experts.

It reminds me of a report put out by a very well known Australian bank a few years ago.   The gist of it went, “we have spent 10 days in China, and everywhere we went, we heard the same message. So it must be true.”  It is bordering on hubris to suggest that one can glean a clear picture of a complex structure so easily.

I relocated to Beijing in 2005, after dealing with Chinese companies since 1998, and have been involved in the aluminium industry in China since then. Yet I consider myself still an apprentice when it comes to understanding the industry. How a guy based in London or New York can make sense of it is difficult enough, but to base an assessment on the lack of evidence when he was never going to get the evidence in the first place, is a stretch too far.

By the way, I am not asserting that we have indisputable proof of exactly how much metal is in this category.  We are working on that, but quietly, and not by sending a foreigner on a 2 week visit.  There are much better ways.