China: 90% smelters were at a loss in Q1 2014

Written by June Wang

As the curve below shows, the highest cash cost of domestic smelters was RMB16,900/t and lowest was RMB10900/t.  As of 28 March 2014, the SHFE spot price was RMB12845/t. With the aluminium price sliding through the quarter, nearly all the smelters were under extreme pressure.

CCC Q1

Only 7 smelters finished the quarter under the SHFE spot price line.

From the beginning of 2014, aluminium prices continued down due to worries about the oversupply and the economic conditions in China. In addition, the government emphasis on policy implementation, such as tightening credit, tiered power pricing added more pressure, and in come cases sliced their already thin margins.

As of 17 April 2014, the cuts to production have reached 1,375 kt, with 490kt  in April, although prices have now stopped falling and seem to be recovering slightly.

We will likely see more production cuts, despite the improving price, as the depth of losses is still too great for many.

For more information about China’s Cash Cost Curve, please contact me at AZ China.

MIIT names aluminium companies meeting “Aluminium Industry Norms”

Written by Yuan JI

China’s Ministry of Industry and Information Technology (MIIT) issued its “Aluminium Industry Norms” standard in July 2013, which modified and replaced “Aluminium Industry Entrance Conditions (2007)”. The document focuses on layout and scale, product quality, technology and facilities, energy consumption, resource utilization, environment protection, production safety and social responsibility. In modified norm, MIIT provides clear and specific indicators for measuring.

After several months, MIIT has announced the first batch of companies that meet the new norms. In all, 36 companies (40 projects) are listed. Of those, 26 are aluminium smelters with 9.55mt in total capacity, accounting for 30% of national capacities. On the list, 79% of capacities are state-owned, such as Jiaozuo Wanfang, Gansu Hualu, Huanghe Xinye, while 21% belong to private groups, for instance Qinghai Qiaotou and Shandong Yili. Some 70% of qualified capacities are located in Henan, Inner Mongolia, Qinghai and Yunnan provinces. As for technology, state-owned companies apply technology in the range of 160ka up to 500ka, while those private companies on the list employ technology ranging from 230ka to 400ka.

The 2nd batch will be announced later this year.

Companies that meet this standard are somewhat protected from some of the edicts regarding over-capacity, mainly because the attack on over-capacity has focused on inefficient, outmoded plants and technology.   On the same token, to date none of the plants that have shut down this year have shut because the government told them to.   All have cited the harsh economic conditions and low metal prices.

May 5-7, 2014

Written by CT

There are less than three weeks to go before the 4th International Aluminium and Carbon Conference, starting Monday, May 5.  Major topics to be discussed at the conference:

1. How can we decipher China’s past to understand its future?

2. What will China’s aluminium industry look like in 2020?

3. What is the impact of shale oil on the aluminium industry?

4. What current coke problems are we facing and what are the solutions?

5. What are the future trends for the bottom and inside of the pot?

From the PPTs we’ve seen so far, our VIP speakers have some useful information to share and it will be a great time for networking. If you haven’t already, don’t forget to register on our conference website. You’ll also want to reserve your Sofitel hotel room soon as available rooms are dwindling.

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Proof that markets are not perfect

Written by Paul Adkins

The Chinese government today announced that Q1 GDP came in at 7.4% on a year on year basis.   Immediately, markets jumped, and the Australian dollar, which is highly dependent on the Chinese economy, rose almost half a cent.

Yet, the real story is not the 7.4% number, but the quarter on quarter one.   Taking the GDP growth for Q1 compared sequentially and extrapolated to a full year, GDP came in at 5.7%.

In other words, if China keeps growing at the rate of Q1, it will end up nowhere near its stated target of 7.5%.

So why did the markets respond positively to something that was decidedly negative?   It’s because mainstream economists and commentators had predicted that the YoY number would be 7.3%.   The tiny over-achievement compared to predictions by foreign commentators was seen as good news.   Yet the real news in the GDP numbers was missed.

What’s more likely to happen is that the QoQ number will cause Beijing to increase its rhetoric about more railways, housing developments and other infrastructure.   While we will not see a fully-fledged stimulus package, we may see slightly more spending announced, to keep the economy ticking over until trade and domestic consumption improve enough.

By the way, those of you who subscribe to our monthly Black China report will know that the lower GDP should not have been a surprise.   As we said in that report just a few days ago, all the signs pointed to a slow-down.

And the slow-down is there, despite the mainstream press and some markets misunderstanding the numbers.

 

China’s 7 trillion RMB stimulus plan

Written by Richard Lu

Along with the possibly weaker Q1 GDP growth figure, China’s news media has been focusing on the government’s “Steady Growth” strategy recently. Several provincial governments have released local stimulus plans, and when added together, these individual programs amount to 7 trillion RMB.

You might wonder whether those stimulus plans will be fruitful or not, whether they are the same as last 4 trillion stimulus package or not, and whether these programs will lead to the same problems that originated in 2008′s package. The key points in the government’s plan go some way to answering those concerns.

1. China won’t tolerate a hard landing, and doesn’t expect one, so stimulus plan must be applied to keep the economy growth.
2. Investment will remain the major momentum in driving China economy growth.
3. 7 trillion investment refers to key project investment in 5 province including Guangdong, Hainan, Tianjin, Jiangxi, and Guizhou.
4. Different from the last 4 trillion stimulus package, this 7 trillion won’t be invested instantly but gradually injected over several years.  The growth rate for those key project investments in 2014 is only about 11%.
5. The investment will be centered on railway network expansion, shantytown redevelopment and tax cuts for small companies.
6. With the heavy local debt, more private funds will be introduced into the investment.

It’s anyone’s guess to what extent these programs will be successful or not, but if they can be implemented as pronounced without any delays, it would be good news for commodities including aluminium.

According to a Forbes article, China’s railway network will reach 120,000Km in 2015, but is still a long way behind countries such as the USA.  With a great increase in railway network length, and more pervasive aluminium alloy applications in high speed train and rail cars, aluminium will be very likely well consumed by this sector. Shantytown redevelopment will build another root on commodity consumption, so coupled with other similar infrastructure projects, current over-capacity of aluminium will also be somewhat relieved. Perhaps the impact would not be big enough to ease the glut completely, but we could still expect some support on aluminium price from this positive news.

We will monitor the progress of these programs, and their impacts on primary aluminium.

Xinfa, the unique

Written by Richard Lu

Both SHFE and LME aluminium prices have hit historical lows recently. As a result of the continued subdued prices, many smelters inside and outside China are forced to consider, plan or implement curtailments. However, Xinfa, the third largest aluminium company in China, has announced a 550KT new expansion at its Xinjiang smelter. Its odd action definitely distinguishes Xinfa from the others and makes it unique in the aluminium industry.

Xinfa is betting the market will pick up eventually, once enough loss-making smelters retreat from the market, putting it in a position to reap the benefits.

But how can Xinfa afford to do this, especially in today’s environment? Probably an anecdotal story can give some hints. Looking back to 2004, Xinfa took the risk of building up its first production lines, which required 1.5 billion RMB initial investment. Financing that amount of money through loans didn’t make any sense at that time, because the government was very conservative on aluminium projects and no bank could support the project on its own. Mr. Zhang Xuexin, the CEO, boldly decided to finance the capital internally through Xinfa’s employees with a daring proposition, namely 50% return rate per half year.

The internal financing motivated the employees, and coupled with the right judgment on the market, Mr. Zhang soon delivered his promise successfully.   Today, Xinfa is recognised throughout the Chinese aluminium industry as the most successful, and soon to be one of the largest.

According to our estimates, Xinfa’s total capacity will reach more than 3 million tons per annum after the expansion and will rank them as No.2 in China’s primary aluminium industry, just behind Chalco. However, compared to under-performing Chalco, we could see Xinfa can become the leader and icon of China aluminium industry in future.

Other assets controlled directly and indirectly by Xinfa, both upstream and downstream, are also performing well. So let us keep an eye on its development and verify if it could become the industry leader. For me, I stand at the bullish side.

 

Breaking AZ China bitcoin news

Written by CT

Sometimes it’s just not possible to stay ahead of the curve, but sometimes it is.   AZ China is now the first and only aluminium conference to accept bitcoin!

bitcoin

Bitcoin has been all over the news the past few months yet only true innovators and early adopters are actually using it. The early majority are still waiting to see what will become of it all before jumping on the bandwagon. But you don’t need to wait for the wagon; we’re offering you your very own race horse with a bitcoin conference registration payment option.

Here’s how it works: Fill out the registration form on our conference website and simply select the “Pay with Bitcoin” option. After we receive your registration, Coinbase will email you a bitcoin payment link. At this time you can quickly and easily sign up for a “wallet” account with Coinbase that links to your bank account.

Still apprehensive? Feel free to give it a try and if it turns out to be too much bother for you, we can easily cancel the bitcoin payment request and you can pay with a variety of other tried and true methods.

Be innovative. Bitcoin your AZ China conference payment.

A word of caution: Once you’ve joined the bitcoin elite, try to not flash your bitcoin around the office too much. No one likes a showoff.

bit

Want to know where the aluminium market will be in 2020? Join us in Beijing, May 5-7 and stay ahead of the curve with the best aluminium information around and quality networking. Not sure if the conference will be worth your time? Email your expectations to enquiries@az-china.com.

Rollout of tiered electricity pricing for China’s aluminium industry

Written by Yuan JI

Following Beijing’s guidelines about tiered pricing for China’s aluminium industry, some local governments have published and started to conduct local implementation plans. Although we expect limited impact on the industry, which we posted in another blog, the implementation plans can promote industry upgrading to a certain degree.

Shandong province, with aluminium capacity of about 5.6 million tonnes, issued a notice that the local government will collect the data of volumes of liquid aluminium and corresponding electricity consumption annually, to determine AC consumption and relevant electricity pricing. Hubei province, with current aluminium capacity of 378kt, has issued a similar notice.  Gansu province started to implement the central government’s guideline as well. At the same time they asked all local authorities to find the best ways to support local enterprises’ technical upgrading and reduce electricity charges.  Urumqi government issued a notice on tiered pricing. In Urumqi’s case, they have allowed for 90% of the increased cost to be returned to smelters in the form of funding for technical upgrades, to reduce electricity consumption.

We will keep watching on the individual smelters’ electricity payment standards which should be published soon on local government’s official websites. If the local extra electricity charges are used on enterprises’ upgrading, it is a positive for sure. But it still loads smelters with additional cost, at a time when market prices are low, and gives them funding that doesn’t help them in the short term.

It is also worth noting how the local governments go about checking electricity consumption.   There is a huge team of technical and accounting experts who are assigned to each smelter.   This team conducts almost a full audit of the plant, stripping out downstream electricity consumption, and examining a year’s worth of pot performance data and other operating characteristics.   The finished audit will be a treasure trove of performance data.

 

A “Clayton’s” stimulus

Written by Paul Adkins

“Clayton’s” is a word that entered Australian parlance after a non-alcoholic beer company ran a series of TV ads, with the line – “Clayton’s – the drink you have when you are not having a drink.”

Chinese Premier Li Keqiang and the State Council have announced a stimulus package which looks remarkably like the stimulus package you have when you aren’t having a stimulus.

The State Council last night announced a series of measures designed to keep China’s economy on track.   The package includes spending on low-income housing and railways, as well as tax relief for small businesses, but the announcement contained no information on how these programs would be funded.   Importantly, the announcement also carried no word on how Beijing would address some of the financial problems besetting the economy, as companies struggle to repay bonds and corporate loans.

The package was within the guidelines already laid out in the 2014 work plan that the State Council issued a few months ago, so in that respect it contained no surprises or new initiatives.   As always with Beijing, this announcement seems to be more in the “talk the talk” domain than in the “walk the walk” one.   But perhaps that’s all that is needed in some parts of China’s economy, as sentiment seems to be overruling the fundamentals.

We will be discussing these and other issues in the “China Economy” section of the AZ China conference coming up in about 4 weeks time.

 

A blog about a blog

Written by Paul Adkins

Congratulations to the folks at Rain CII, who have entered the world of social media by launching their own blog site.

Launched earlier this year, the blog offers to give us an insight into the combined businesses of Rain CII and Rutgers, with the respective CEO’s being the first bloggers.

You can catch the musings of Rain CII’s Gerry Sweeney and Rutger’s Henri Steinmetz at blogs.raincii.com.