AZ China has today published a new Client Briefing Note which explores China’s domestic bauxite production growth.
Analyst June Wang has conducted a deep dive analysis of the data surrounding the industry in China. China does not publish domestic production data, but June has been able to build a pretty convincing case that shows quite an incredible growth rate this year.
According to June’s estimates, China’s domestic bauxite production grew by at least 50% this year. That’s an amazing growth rate, and her sensitivity analysis shows that even if she is out on some of her numbers, the growth this year is still well ahead of growth in primary aluminium capacity.
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One of the features of China that we foreigners are not accustomed to is that so many people seem to share the same surname. But rarely are people with the same surname actually related, unless I guess we go back several thousand years.
According to the fountain of all 21st century knowledge, Wikipedia, some 92 million people have the surname Wang, which ironically means King or Emperor. The second most popular name, Li, also has 92 million users, while Zhang, the third most popular, has 87 million people. These top three surnames alone account for more people than Indonesia, the fourth most populous country in the world.
All together, the top hundred surnames account for 85% of China’s population.
By way of comparison, the most common surname in the United States – Smith – has fewer than 2.4 million people and makes up only 0.8% of the general population. The top 100 surnames in the US account for only 16% of the US population, and to reach the 85% mark that China’s top 100 names represents, you need around 150,000 surnames in the US. This is probably due to the US’s long history of immigration, something which China has rarely experienced.
According to Wikipedia, the top hits are:
- Wang, or in Cantonese,Wong, meaning king or emperor
- Li, in Cantonese Lee
- Zhang, which can also be written as Chang, and in Cantonese is pronounced Cheung
- Huang. The character for Huang means Yellow colour in Chinese.
- Zhou. Zhou is a popular character in reference to cities, and means circle, or round.
So, three of the top 10 names in China also have meanings, while the others are only used as names.
President Xi Jinping is truly a rarity. His family name does not even appear in the top 100.
So, next time you are in China and are introduced to Mr Wang, don’t bother asking if he’s related to the other Mr Wang you met yesterday.
Editor’s note: The Communist Party’s most important economic conference has just concluded. The government must carry out the policies ordained by the party, so what was decided in the past 3 days will be borne out over the coming months. AZ China’s senior analyst Richard Lu looks at the outcomes from the conference.
The three-day Central Economic Working Conference was concluded in Beijing yesterday. China’s leaders and senior officials attended the crucial meeting which set the tone for economic policies in 2015.
“New Normal” was the key word in that conference, to describe the balance between slower growth and higher quality growth for the economy. Given that conference aimed to look at the big picture, there was not many detailed and quantified targets set during the last three days. However, lowering the annual GDP growth rate is now a sure thing and is expected to be 7%. Additionally, there are two things caught my eye.
Five major tasks were listed in the conference. Striving for stable economic growth and exploring new growth were ranked No.1 and No.2 respectively. My reading is that the government has no choice but to prevent a hard landing given the strong risks that exist, including local government debt, and so far there is no effective approach to sustain the high growth but to explore new opportunities. Under that circumstance, I think 7% target will not be a really hard target to be achieved but a one accompanied with more tests of new policies in 2015.
Another interesting thing is that the property market was missed in the agenda again. Some people may think it was a strong indicator that the government left its hand on that market, but how can it be true given the government owns the land? I do think there is a long way to go to mitigate the conflicts between the government, property developers and home buyers. In other words, property market will remain weak unless there is more government support.
At last, I would note to our readers that 2015 is the last year for the 12th Five Year Plan, so there must be more emphasis placed by the government to complete the tasks outlined in the present plan. Consequently, a more volatile market is likely to be seen in 2015.
AZ China has announced a new feature to be added to the Semester Pricing Handbook (SPH) – analysis by Country and (Chinese) Supplier.
The SPH is a vital tool for anyone in the Calcined Petroleum Coke (CPC) field. Whether you are a buyer or a seller, the SPH brings you all the information you need to help you in your negotiations. Sensitivity analysis, green coke and anode analysis, relationships with LME and SHFE – it’s all in the SPH.
But the new supplier analysis pages bring a new dimension to the service. Where before we gave you all the bullets you need to negotiate CPC, now we bring you the smoking gun. This information is dynamite.
To show you what I mean, just look at these two screenshots.
This screen shows you what a certain producer was doing with prices in various countries over 3 quarters.
The Supplier Analysis pages will be included at no extra charge in the next edition of the SPH. But that’s the only place where you can obtain the Supplier Analysis pages. A single-user 12 month subscription to the Semester Pricing Handbook is US$3900. Discounts are available if you are already a subscriber to other AZ China reports, or if you want to add more than one subscriber.
If you would like to order a subscription, please complete this form. Or write to me at AZ China.
When was the last time you looked at AZ China’s monthly aluminium report?
We have recently revamped this report to provide more of a global view. As well, we have added a “hot topics” section, where we give a brief synopsis of the key issues in the aluminium market. We have tried to make the report more user-friendly, with deep-dive information for those who need it, as well as a quick review of the key data in case you don’t have time the first time around.
Our monthly World Aluminium Report also provides our “AZ China’s Call” section, as we provide in our weekly aluminium alert. Here we try to give you an indication of what prices are likely to do in the coming period, and why.
If you have been following us in this blog, or on the Reuters Base Metals Forum, or our Client Briefing Notes, then you will know of our reputation as one of the best in the business. We don’t look at copper or nickel or zinc – aluminium is what we know and what we do, and the Monthly World Aluminium Report forms the basis of our commentary and our predictions.
The AZ China Monthly World Aluminium Report is available on a 12-month single user subscription basis for US$3,900 (12 issues). Discounts are available if you are already subscribing to other AZ China reports, or if you are looking to add multiple subscribers.
If you would like to receive a free sample of the report, simply complete the fields below.
China’s aluminium industry has become embroiled in a fight between a smelter and a newspaper.
The Beijing News published a report on Saturday claiming that pollution emanating from an aluminium smelter in Hunan province was affecting the lives of the local residents. But the smelter has hit back, refuting the claims.
The Beijing News reported that more than 10 people have come down with cancer caused by fluoride emissions from the Chuangyuan Aluminium Co in Taoyuan county in Hunan. The report also suggested that crops were failing because of the failure to control solid waste escaping the plant. Pictures showed red-colored water seeping through solid waste. Oranges grown in surrounding areas were also affected, with some fruits appearing in strangely green colours, according to the paper.
But the smelter has published a statement on its website denying the charges. Chengtong Group, owners of the smelter, assert that the plant meets all waste gas and water limits, and that the plant has done nothing wrong. The announcement goes on to reserve the right to litigate against the newspaper.
The smelter runs at 240KA and has an annual output of 330,000tpa, and has its own captive power plant.
The local environmental protection department has now sent a team of inspectors to investigate the claims and counter-claims.
Update: More photos of the alleged offending smelter have been published today. But this photo below is of a power station, not an aluminium smelter. That’s not to say that power stations can’t create pollution, but if the residents are complaining about fluoride emissions, then those emissions are not coming from the stacks shown in this photo. More likely, the photographer didn’t know what to photograph, and has probably never seen an aluminium smelter before. But it shows how easily stories can lose their power if the journalist or photographer doesn’t get his facts right.
(Acknowledgement to The Shanghaiist website for these photos.)
China’s trade data for November caused a surprise, with exports growing more modestly than expected, but imports falling dramatically.
November’s Trade Balance came in at $ 54.5bn vs $43.95bn expected and well above October’s $45.91bn. Exports stood at +4.7% y/y versus +8% expected and 11.6% in October, while imports dropped 6.7 % y/y. The consensus was for a 3.8% jump after an increase of 4.6% in October.
All of which leaves me wondering if there is any correlation between the trade data and the recent rally in the Shanghai stock market. Could it be that the prospect of quick wins in Shanghai have led certain people to hold off sending capital out of China?
It’s well accepted that at least part of China’s trade involves the movement of capital, not just goods. Raise an invoice on a foreign counterpart and the money flowing into China to pay that invoice goes into the export trade data, even if the purchased items were paperclips at $1 million each. Reverse the flow – pay money to a foreign invoice – and that same trade is counted in the import statistics. Capital moves in and out of China according to the economics of greed. If I can capitalise on China’s higher interest rates, I will move money into the country. If I want to get my money out of the country, I can.
Chinese people have very few investment vehicles available to them. Bank interest rates are negative in real terms, so they really only have a choice of property or equities. We have all seen what has happened to the property market, as millions of Chinese sought to park their wealth in apartments, never expecting the price to fall. And it’s not the first time Shanghai has had a bull run, which in turn has led more Chinese to rush to the phones or broker websites.
So it’s quite possible that one of the reasons for the drop in the imports figure for November has been simply because those who were going to send money overseas have opted to take their chances on the Shanghai roulette table. We all know what will happen once the gap between price and valuation widens too far.
No doubt there are other reasons behind the drop in the imports number. But I bet this is one sure factor.
Here’s a little weekend reading, in case you were wondering about China’s provinces and how they all got their names.
Certainly when you start learning Chinese, you quickly realise that names that sound exotic and mysterious to our foreign ears are really quite simple. Shanxi, for instance, is simply that region that is west (“xi”) of the mountains (“shan”) and Beijing is simply the North (“Bei”) Capital (“Jing”). Nanjing used to be the southern capital, “nan” being Chinese for South.
But this link gives you chapter and verse of every province and how the name came about.
Aluminium fluoride, a tiny but key ingredient in the process of making raw aluminium, has had a tumultuous 21st century, and it isn’t going to get any easier.
At the turn of the century, the world had a natural, if somewhat artificial balance. Producers in Italy, Tunisia, Norway, Mexico and the USA had the market clearly mapped out. Prices were stable, and customers pretty much stayed with their regular supplier. That is, until the Chinese came along.
When Xiang Xiang, now known as Hunan Nonferrous, figured out a way to get ALF3 into overseas markets, everything changed. Prices plunged as buyers (full disclosure – I was one of them) deserted their traditional supply models in favour of new suppliers. Pretty soon the Chinese had taken the market leadership position, and were threatening to wipe out some higher cost producers.
But then the Global Financial Crisis hit, just as the Chinese ALF3 industry had been expanding rapidly. China’s aluminium industry took deep cuts to production, and international producers soon followed suit. Where once virtually every ALF3 producer in China was planning to sell record quantities and make significant profits, the whole apple cart got turned on its head.
Now the market is locked in a state of depression. Chinese producers, saddled with excess capacity and filled with deep distrust for each other (that’s a subject for another post), had no choice but to keep agreeing to buyers’ demands for lower prices. That not only hurt them, it also hurt international producers, some of whom had no ability to get near the Chinese price. Some producers have subsequently switched to make alternative products, where they can make a profit.
Today, China still sets the price, though it is dictated to a large extent by the cost of the key raw material – fluorspar. Fluorspar, which is also used in many other products, including the production of refrigerant gas and ceramics, is expensive to mine in China, and 2014 marks the first year where China has become a net importer of fluorspar, bringing material in from Mongolia to augment its own supplies.
Chinese producers are still losing money, or barely breaking even. Fluorspar costs about US$300 per tonne in China, and you need 1.6 tonnes for every tonne of ALF3 produced. One company told me the industry had a net loss of RMB300 million in 2013. ALF3 currently sells for about US$1050. Two years ago it was selling for $1200.
But if the ALF3 industry is in pain now, 2016 will see a lot more pain visited on them. That’s when the new Sepfluor plant in South Africa will come on line. Tom Magauran, CEO of Sepfluor, told me at the ARABAL conference last week that their cost of fluorspar will be about half what it costs Chinese producers, mainly thanks to the fact that there is no overburden to be removed to get to the ore.
Although their plant will only produce 60,000t of ALF3, it will be positioned in the market at a point that will hurt the Chinese, geographically as well as on margin. Being in South Africa, they will be able to supply Middle Eastern smelters for about the same shipping costs as the Chinese pay, but their price can sit well below the Chinese price and yet still command a reasonable margin.
By my estimate, if we take all the Middle Eastern capacity combined, there is a total demand for ALF3 of around 180,000 to 200,000t. It means that Sepfluor can supply up to a third of the total demand, thereby establishing a price point that buyers will want to see replicated among their other suppliers.
Tom Magauran described it as a “tectonic shift”, which if it pans out, will be a pretty good description for what lies ahead for Chinese producers. Or another word that comes to mind is “bloodbath.”