April Fool’s Day headlines we would like to see

Written by Paul Adkins

We hope you enjoyed our earlier story about new developments with TiO2.   Our industry gives a rich palette of ideas for stories for this one day of the year.   Here’s some headlines we could have used.   Enjoy!

  • Shell buys BP’s coke assets, and rules that all employees must adopt Dutch names. Howard Van der Childs and Scott Vander Lean order new business cards.
  • Alcoa and Rusal agree on a Cultural Exchange Program; Oleg Derapaska and Klaus Kleinfeld set the example by swapping jobs
  • Indian purchasing managers shun discounts, offer price increases
  • Chinese government legislates that Chinese CPC must increase the % of steel bars, tools, rope, leather belts, timber, food wrappers and other items, to reduce the pollution levels caused by too much carbon in the cargo.
  • Koppers’ Bob Wombles announces that after years of testing, he has discovered a direct causal relationship between QI and IQ. Not enough of one, not enough of the other.
  • China announces it has developed an inert anode, which is made of calcined petcoke with a pitch binding, and which can last up to 28 days. When he hears of this, Michael Wrotniak is speechless.
  • Rain CII and Oxbow merge their calcining assets, to become RainBow Calcining.

Any others you care to contribute?

 

White is the new black, and silver, in stunning move

Written by Paul Adkins

This blog can now reveal two amazing breakthroughs achieved by the Titanium Dioxide (TiO2) industry. TiO2 is used in everything from paint to paper as the pigment that delivers the colour white to hundreds of products in our daily lives.

TiO2 has always had to compete with the aluminium industry for supply of calcined coke.  The aluminium industry dominates the market, leaving the TiO2 players with little choice but to pay the going rate.

But TiO2 scientists have made not one but two amazing breakthroughs. These breakthroughs are set to transform both the anode/calcined coke market and the global aluminium industry.

White anodes

Chinese anode plants and aluminium smelters are now trialling the use of TiO2 as a binder in the anode, replacing coal tar pitch. The trials are still underway, but the most immediate and eye-catching outcome is that the anodes are white.

“For too long, we have lived under the paradigm that anodes have to be black” said Mr Sarry Badler, a well-known expert on anode performance.  “But why?  In China now with these new white anodes, the anode plants are much brighter than before, and employee morale has lifted as well” said Mr Badler.

AZ China has been able to get this spy camera photo of some white anodes.

White anodes

White anodes

 

We wondered how long before we start to see white anodes shipped to smelters all around the world. To answer that question, we are now seeking comment from Aminco Resources, the world’s leading exporter of Chinese anodes, including whether the rumour is true that their partners in R&D Carbon are experimenting with other colours besides white.

White aluminium

The TiO2 in the anode dissolves in the molten aluminium in the electrolytic cell, but this is a good thing, according to the Chinese who have been trialling the new binder.   “We were already adding titanium as an alloying ingredient in the cast house, so this saves us money” said one prominent Chinese smelter manager.

By the time the aluminium is passed through the rolling mill and taken down to its final thickness, the metal takes on a glossy white appearance, thanks to the TiO2 still in the metal.  That in turn has saved on painting the metal before final use.

“It’s a huge breakthrough” said one senior representative from Ford Motor Company. “With us switching to aluminium panels in our F150 series, having white metal will save us an enormous amount of money on painting.  He went on to say, “This move takes us back to our roots. We all know the story of Henry Ford and the Model T.  Now, starting from when the new panels are introduced, you will be able to buy any colour F150 you want, as long as it’s white.”

We have been able to get this sneak preview of the Ford F150 showing the new white panels.

White F150

426,000t to go

Written by Paul Adkins

Alcoa has carried out the first leg of its review of smelting capacity, announcing the closure of its last remaining smelter in Brazil.

The Alumar smelter was running at a rate of 74,000t after suffering previous cutbacks.  This leaves Brazil with just 2 smelters producing a little over 900,000t. Brazil is already a net importer of metal, a situation which will see premiums rise further, especially in the run-up to the next Olympics.

Alcoa announced it was reviewing 500,000t of capacity with a view to moving itself down the cash cost curve.  Immediately the announcement came out, analysts pointed to Brazil and Spain as two most likely candidates for curtailment.

Alcoa has 3 plants in Spain, but two of them were idled during the previous round of cuts.  At that time, the idling was declared to be “partial and temporary.”  The two plants have a combined capacity of about 170,000t.  If those two plants move to a new status of “complete and permanent” closure, that would still leave Alcoa with about half of its 500,000t target to be found. Alcoa is starting to run out of choices in far-flung countries. Assuming the third smelter in Spain is safe, Alcoa still has Norway, Australia and Iceland as targets, but some North American plants might now be feeling the heat of the spotlight falling on them.  It has been reported that Australia’s Portland smelter was not part of the review, while Norway and Iceland are relatively low cost plants, according to our data. Assuming the 500,000t target was not an arbitrary number, it does start to look like North America will be the third leg of the cuts.

(Note to Alcoa – your Alcoa Iceland web page shows it is under construction and will be ready in October 2014.)

Which country’s aluminium production grew by 13% in 2014?

Written by Paul Adkins

If you said China, you would be wrong.

India’s aluminium production grew from 1.68 million tonnes in 2013 to 1.91mt last year.  This impressive growth came about due to several projects coming on line – HINDALCO’s Mahan and Aditya smelters, with a capacity of 359,000 TPA each, began operations, while VEDANTA’s Korba­ II smelter also started operating 84 of its 336 pots in 2H2014.

Demand growth was nowhere near that level, but Indian aluminium companies have benefitted from the structural shortage of metal in the world. Indian exports of primary aluminium rose by 72 per cent YoY between January and November 2014. Indian aluminium production generally enjoys a relatively low cash cost of production. HINDALCO exported almost half of its production, compared to less than 20 per cent last fiscal year. VEDANTA exported about 40 per cent of its output against about 30 per cent in FY 2013-14.

The export outlet may not be the relief in 2015 that it was in 2014. So far this year, LME prices have been under-performing, and India’s producers find their cash costs rising, thanks to the increased cost of coal.

All of the above news and information is extracted from our latest “India Report”.    This report is a comprehensive look at the India economy, aluminium industry and the raw materials markets. Don’t miss out on this important part of the global aluminium industry. Simply complete our Contact Form below.

 

Chalco posts deep loss

Written by Paul Adkins

Chalco has confirmed its February guidance and posted a loss of RMB16 billion (US$2.6 billion) for the 2014 year. It takes total losses over the last 3 years to RMB25 billion (US$4.1 billion.)

It’s easily the largest loss posted by any Hong Kong A share company.

2014’s result comes as a result of low metal prices in China, which in turn is due to severe over-capacity and over-supply in the China market.

The loss was made worse by the company taking an impairment charge of RMB7.5 billion (US$1.2 billion) for write downs of assets and reduction of head count.

Even so, the annual report showed almost no gross profit on its base sales, with RMB600 million gross profit on sales of RMB142 billion, for a GP margin of 0.4%.  But look further in the books, and you find that the company was the recipient of RMB800 billion in cash grants from the government.

Last year the company sold its downstream assets to its parent company Chinalco in order to avoid a loss.  Right now Chalco’s best hope is to use the impairment charge to shut some capacity in hope that enough metal exits the market to cause a sustained lift in metal prices. Then they just need for the industry to hold its nerve and keep idled capacity closed.  The events of 2014, when local governments provided subsidies in return for plants reopening, tend to suggest that keeping plants closed will be harder than shutting them in the first place, and that’s not an easy decision either.

 

Zoo news – Gunnar to retire

Written by Paul Adkins

If you have ever been to the Boliden ALF3 plant in Odda, Norway, you will understand why that company has such a low staff turnover.   It is one of the most beautiful spots you could imagine, with the fjord reflecting the snow capped mountains almost all around it. So leaving this setting must have been a difficult decision for Gunnar Moland.

Gunnar, who heads up the Boliden ALF3 business, has decided to take retirement at the end of June. Gunnar has been in the job 9 years, having replaced Curt Jarnfeldt, who in turn had replaced industry icon Karl-Olav Tjalvin. Old hands in the ALF3 industry will remember Karl-Olav, who almost single-handedly built the plant’s expansion, back in the days when it was known as Noralf.

Where Karl-Olav’s fights were with his Board of Directors, trying to get the expansion approved, Gunnar has had to deal with the rise (and eventual fall) of Chinese material flooding the market, and dragging prices down. It’s a credit to Gunnar that the company has maintained its position in the market.

The Boliden plant, nestled in the hills on a point jutting into the fjord, and only a 2-3 hour drive from Bergen, has seen only 4 managers in at least 20 years. Not a bad record.

Gunnar will be replaced by Are Skreien, who comes from Boliden’s zinc side where he was Group Sales Manager. Are has experience in other sales and finance roles in the Boliden group.

We wish Gunnar every success in his retirement, as we do for Are in his new role.

Curtailments coming?

Written by Paul Adkins

There is a rumour doing the rounds of the China market this morning that Chalco and its sell-side consortium partners are planning to curtail some operating capacity.

No details on how much, or for how long, or which particular plants would take some pain,  or when this would start, though the understanding is that Chalco wishes to cash in on the upcoming peak season for demand by throttling back some supply and forcing prices up.

Again I stress that this is just a rumour, but it certainly makes sense.   When the consortium was announced almost two months ago, we said then that blaming buyers for low prices is a “head in the sand” view of the problem.   The 13 companies in the consortium have only themselves to blame for pumping too much metal into the market.   Where foreign producers such as Alcoa and Rusal took action by closing old inefficient plants, China had shown no signs of doing the same. So if the rumour is true it would be the right approach.

A couple of things to consider, if the rumour is true.

  • The current rally in prices may in fact be due to buyers jumping in ahead of the announcement. There’s no doubt prices would pop, depending on the extent of any curtailments.
  • Curtailments of smelting capacity would take the pressure off supply of anode coke.  Coke prices continue to rise as supply of anode coke remains short.
  • Curtailments could change the balance of local government subsidies.  If a plant closes one line, will it still be eligible for a subsidy? How will those local governments react?
  • A higher metal price will kill those who seek to make a buck by exporting semis. As we have reported here, China’s semis exports are in record high levels, but that business could “stop on a dime” as Americans say.  There’s already a lot of pressure on this business, with lower LME prices, falling premiums and increased pressure from the Chinese government, not to mention the actions taken recently by Rusal.
  • Alumina prices will fall. Don’t be long imported alumina right now.

We will bring more news on this as and when we find out more.

 

Conflicting trends and lazy bureaucrats

Written by Paul Adkins

The International Aluminium Institute has released the production figures for February, and the numbers seem to reveal a couple of trends, but beware.

Measured on a tonnes per day basis, production for the rest of the world ex-China has risen slightly over January (1%) and by 2% compared to February 2014.   But it is not a uniform move, and there are no surprises in the data. Compared to 12 months ago, South America and Africa are down, GCC is up, Western Europe is up, Australia/New Zealand is down.   Simply put, GCC production increases have cancelled out the cutbacks in most other parts of the world.

What this means is that the structural shortage of new metal units is yet to reveal itself fully.   A 2% rise in supply is not enough to cover demand growth RoW, but combined with legacy metal exiting finance deals and semis exports from China, the new super cycle is a long time coming. But until Alba Line 6 starts up, it’s unlikely GCC can continue growing output, meaning that a structural gap in supply will be a slow reveal.

China on the other hand presents a different picture. At first glance, China seems to have grown slightly over January, achieving 89,400 tonnes per day.   But that’s not a true reflection, since the IAI loads a set 300,000t per month of unreported production. Divided by 28 days in February, that number artificially inflates the daily rate for China. Without the unreported production figure, China’s daily output was unchanged.  (Unreported production is a proxy for Weiqiao, which is running at 3.6 million tonnes per year, or 300,000t per month.)

But the real news is in the comparison with 2014.  February shows a growth of 20% over Feb 2014. In fact, the problem seems to be in the January numbers.   January’s daily rate jumped from 70,000tpd in December to 78,700tpd. At no stage in the industry’s history have we seen so much capacity added in just one month.  And February’s data, leaving out unreported production, is identical to January, despite such a jump the previous month. Quite simply, the numbers appear to be made up.

Aberrations like this tend to support our case that one should treat production data in the first 3 months with a great deal of care.  January’s data appears to have been loaded or guessed, and February’s data seems to be just a repeat of January. The secondary message is, beware of analysts and commentators who proclaim that China is making too much metal, based on this data.  Maybe they are, but we can’t use this data to prove it, only to prove that there some lazy bureaucrats somewhere in Beijing.

Brave brothers

Written by Paul Adkins

One last post from TMS, this one involving intrepid brothers Morten and Klaus Simonsen.

Klaus and Morten discover a bar

Klaus and Morten discover a bar

 

 

 

 

 

 

 

 

Well known for their bold exploration of all corners of the globe, Morten and Klaus decided to explore a bar while at TMS.  I was lucky enough to hear their conversation…

Morten: “This place is what is called a ‘bar’.”

Klaus: “What does one do in this place?”

Morten: “Apparently, one orders alcoholic beverages, then drinks said beverages in the company of friends and business colleagues.”

Klaus: “Is that it? That all seems a bit simple and inefficient. A bit of a waste of time, if you ask me.”

Morten: “You’re right. These places are not for us. Let’s get out of here.”

It’s good to see them trying everything at least once… I repeat, at least once.

 

 

TMS Live Blog – goodbye Orlando hello Nashville

Written by Paul Adkins

That’s it. Finished. Most commercial people have wrapped up their meetings, leaving only a handful of people to continue proceedings tomorrow.    Plus the technical papers, which continue tomorrow. But for the majority of us, we are heading to the bar or the airport to close the TMS 2015 chapter.

We will see you in Nashville next February for TMS 2016.

Normal transmission on this blog will resume next week. There’s been a lot happening, so we will bring the news as soon as we can.